Global oil demand may be between two million and four million barrels per day (bpd) more than worldwide crude supply by the end of 2019 as exploration spending has declined with fall in prices, an executive with commodities trading house Trafigura said yesterday.

The mismatch in supply and demand is the result of a decline in spending to find new oil and gas reserves and as existing wells, especially new wells from shale formations, are naturally used up, said Trafigura's co-head of group market risk Ben Luckock at an industry conference here.

Benchmark Brent crude oil prices collapsed to as low as US$27.10 a barrel in January last year from as much as US$115.71 in June 2014. Prices have rebounded since then to over US$59.

The steep decline in revenue as prices dropped caused companies to cut their exploration budgets.

Mr Luckock pointed to a drop in exploration spending last year to about US$300 billion (S$406 billion) from US$700 billion two years earlier as a reason supply will eventually fall below demand.

"When we count up the barrels across the next couple of years, we are coming up short," he said. "As prices plummeted, so did upstream spending."

The decline in spending coincides with rising output from wells drilled into shale rock formations in the United States that tend to reach peak production faster than traditional oil wells.

"The nature of oil reservoirs is that they deplete, and shale reservoirs deplete even faster than the average. That means you need to replace something in the order of nine million bpd over the next two years," Mr Luckock added.

A productivity decline in drilling rigs in the Eagle Ford and Permian basins in the United States point to faltering shale oil production levels, he added.

Global oil supply was 97 million bpd during the second quarter of this year while demand was 97.9 million bpd, the International Energy Agency said in its latest oil market report.

REUTERS