The oil market is "eerily" calm despite conflicts in key regions, undermined by weak demand which is holding down oil prices, the IEA said on Tuesday.
Pump jacks are seen at dawn in an oil field over the Monterey Shale formation on March 24, 2014 near Lost Hills, California
"Despite armed conflict in Libya, Iraq and Ukraine, the oil market today looks better supplied than expected, the International Energy Agency said lowering its forecasts for oil demand this year and next.
There were even reports of "an oil glut" in the Atlantic basin, it said.
"Oil prices seem almost eerily calm in the face of mounting geopolitical risks spanning an unusually large swathe of the oil-producing world," it said, referring in particular to Iraq and the advance of Islamic State fighters towards Kirkuk oilfields until US air strikes halted their gains.
- 'Steep' reduction in demand -
The IEA, the oil policy arm of the Organisation for Economic Cooperation and Development, said it was cutting its demand forecasts because consumption in the second quarter was weak.
It also cited weaker than expected global growth as a reason, noting that the International Monetary Fund had lowered its forecast for global economic growth this year by 0.3 percentage points to 3.4 percent.
The IEA also lowered its forecast for demand in 2015.
A "surprisingly steep" reduction of oil demand recently had come on top of "the effect of relentless North American supply growth", the IEA said.
That was a reference to the development of shale energy in North America which the agency has already said is changing the structure of global energy markets.
Meanwhile, the IEA estimated that across the 34 OECD advanced democracies, demand had "plunged by a combined 440,000 bd in the last quarter, and OECD refining activity was "exceptionally weak" in June.
Some of the conflict factors, which could be expected to raise tension and prices on the oil market, might even work in the opposite direction as a "downside risk" to prices, the agency said.
Libya, where some oil facilities were believed to have resumed amid a high level of disruption in the country, was reportedly having difficulty funding buyers for this renewed production.
"US and EU sanctions on the Russian oil sector are not providing oil markets with much support either," the monthly report said. "The consensus in the industry seems to be that neither set of sanctions will have any tangible near-term impact on supplies."
While the market would keep a "watchful eye on the troop build-up along the Russia-Ukraine border, short-term supply disruptions do not seem on the cards," the IEA said.
But the sanctions, which were not limited to the oil sector, "are expected to trim Russian demand."
On the crisis in Iraq, the IEA said that "while the market has taken comfort from steady export flows from the southern fields" the threat from Islamic forces to northern production was "worrisome".
In its monthly report, written before the latest advances by Kurdish fighters against the Islamist forces, the IEA said that "infrastructure bottlenecks in the South, rather than the humanitarian disaster in the North, could become the biggest threat to Iraq's supply potential.
- Market confident about OPEC supplies -
"While the situation across these key producer countries remains more at risk than ever, so far the market appears confident that OPEC can deliver the production increase needed from it to meet rising demand expected in the second half of the year."
The agency said it had "curtailed" its estimate for growth of global oil demand this year, from last month's estimate, to show a gain of 1.0 million barrels a day, down from 1.2 mbd, although the figures were skewed by adjustments of previous demand data.
Overall demand this year would be 92.7 mbd. In the second quarter of this year, the growth of demand of 700,000 barrels per day "fell to its lowest level since the first quarter of 2012."
Growth of demand would then pick up next year to 1.3 mbd on firmer economic growth, but the pace of this recovery would be lower than previously expected because of "lower forecasts for China, Russia and Japan".
However "global supply was up 230,000 bd in July to 93.0 mbd, with higher OPEC output offsetting slightly lower non-OPEC supply," the IEA said.