Global economic slowdown could put a lid on oil prices but there is a risk "nasty supply surprises" could reignite a market rally, the International Energy Agency said.

The agency, which advises industrialized countries on energy policy, said oil market fundamentals had "clearly eased since the start of the year" and stocks had built up significantly over the last few months.

But the IEA said any move by the Organization of the Petroleum Exporting Countries to reduce production to its declared output target of 30 million barrels per day (bpd) could have a dramatic impact on the market.

"Strict adherence to the previous 30 million bpd quota risks a renewed and potentially damaging price surge," the IEA said in its monthly Oil Market Report.

The IEA said the 12 members of OPEC pumped close to 31.8 million bpd in June, before the imposition of an EU oil embargo on Iran on July 1 and tougher US sanctions.
This was 1.3 million bpd higher than its estimate for the demand for OPEC crude oil this year and in 2013 and helped contribute to a further increase in global oil inventories.

Oil prices have fallen by around a quarter over the last three months with North Sea Brent dipping below $ 100 per barrel, down from a high above $ 128 in March as supply has outstripped demand.

The IEA kept its estimate of global oil demand growth steady at around 800,000 bpd for this year and said demand would increase by around 1 million bpd in 2013.

The agency's estimate of global demand next year is around 200,000 bpd higher than forecasts by both the US Energy Information Administration and OPEC, but still reflects a market slowdown in oil demand growth in the industrialized economies.

The IEA estimates world oil demand at 90.9 million bpd in 2013, and says fuel consumption in the developed economies of the Organization for Economic Co-operation and Development (OECD) will be overtaken for the first time by non-OECD demand, "a trend that is unlikely to be reversed".

Stocks of crude oil in the large industrialised economies rose by more than 15 million barrels in May, the IEA said, to over 2.67 billion barrels. Total oil inventories in days of forward demand fell slightly, by 0.8 days to 58.9 days, in May but this still left stocks 1.4 days above the five-year average.

"The oil market is over-supplied," said Barbara Lambrecht, energy markets analyst at Commerzbank in Frankfurt.

"OPEC supply is high, well above what consumers need right now. If anything, the IEA estimate of the build in oil stocks is lower than we would have expected. Supply is very comfortable."

The IEA said Iranian crude oil production fell to near 22-year lows in June as Western pressure over its nuclear programme curbed purchases by refineries, especially in Europe and Asia.

The agency estimated Iranian crude output at 3.2 million bpd in June, down from 3.3 million bpd in May.

But an increase in production by Saudi Arabia more than compensated for the decline in Iranian output as production by the Kingdom rose 150,000 bpd to 10.15 million bpd in June, a level the IEA said was "near-record".

At the same time, oil production by non-OPEC countries is also high and rising, the IEA said, forecasting an overall increase of around 700,000 bpd in 2013 to 53.2 million bpd after an increase of about 400,000 bpd this year.

Much of this increase will come from the US where production of light crude oil from shale deposits in Texas, North Dakota and other mid-western states is rising sharply.