I think O2 levels in the blood increase AND blood flow increases. When you exercise, blood pH decreases due to increased presence of CO2 and H+ (Bohr Effect), then to compensate you breathe faster to let out CO2 faster (hence, more CO2 in the veins too) and to let in more O2 to re-establish homeostasis.
O2 concentration increases also because in acidic pH hemoglobin has lower affinity to O2, thus allowing O2 to easily interact with cells that need it. As this occurs, more O2 will be needed in the blood.
Basically breathing faster = more O2 in arteries, more CO2 in veins, and vasodilation to allow more blood flow for increased O2.
