The International Energy Agency (IEA) has said oil markets look “adequately supplied for now” after a big increase in production over the last six months.
It added that the oil industry is coming under strain as it copes with increasing global demand.
IEA noted in its monthly report on Friday that the world’s spare oil production capacity was already down to only 2 percent of global demand, with further reductions likely to come.
“This strain could be with us for some time and it will likely be accompanied by higher prices, however much we regret them and their potential negative impact on the global economy,” the Paris-based IEA said.
Members of the Organization of the Petroleum Exporting Countries and other exporters such as Russia and U.S. shale producers had increased oil production sharply since May, the IEA said, raising output by 1.4 million barrels per day (bpd).
Overall, OPEC had boosted production by 735,000 bpd since May as Middle East Gulf producers such as Saudi Arabia and the UAE more than compensated for declining output in Venezuela and Iran, which is facing U.S. sanctions from next month.
And the outlook for world oil consumption was faltering.
The IEA cut its forecast of global oil demand growth by 0.11 million bpd for both this year and next to 1.28 million bpd and 1.36 million bpd respectively.
“This is due to a weaker economic outlook, trade concerns, higher oil prices and a revision to Chinese data,” said the IEA, which advises major oil consumers on energy policy.
OECD commercial stocks rose by 15.7 million barrels in August to 2.854 billion barrels, their highest level since February, on strong refinery output and liquefied petroleum gas restocking, the IEA said.
It added that OECD inventories were likely to have risen by 43 million barrels in the third quarter, the largest quarterly increase in stocks since the first quarter of 2016.
“The increase in net production from key suppliers since May of approximately 1.4 million bpd, led by Saudi Arabia, and the fact that oil stocks built by 0.5 million bpd in 2Q18 and look likely to have done the same in 3Q18, lends weight to the argument that the oil market is adequately supplied for now,” the IEA said.