As a result of low oil prices, investment has been withdrawn from the sector, according to Watson.
"We are in a resource business that declines over time without capital. And so new projects have been slowed down but also a lot of short-cycle spending," he told CNBC's Matt Taylor.
"The shale oil developments in the U.S., what we call infill drilling in the business, that has slowed down measurably. And we're starting to see a supply response that will bring markets into better balance."
Watson described this weekend's meeting in Doha between several OPEC and non-OPEC oil producing nations, where the prospect of an output freeze is to be discussed, as a "wildcard" that may affect oil prices in the short term.
"What will OPEC do and what will the producing nations do and will there be some collaboration by those nations to limit increases in supply or reduce supply and that can affect prices," he said. And "But ultimately, it's going to come down to supply and demand and I think markets will come into better balance."