World oil market 'adequately supplied for now' - IEA

By Christopher Johnson

LONDON (Reuters) - Oil markets look "adequately supplied for now" after a big production increase in the last six months, but the industry is coming under strain, the West's energy watchdog said on Friday.

The International Energy Agency said in its monthly report that the world's spare oil production capacity was down to 2 percent of global demand, with further falls likely.

"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 organisation said.

Members of the Organization of the Petroleum Exporting Countries (OPEC) and other exporters such as Russia agreed in June to raise output as the market appeared increasingly tight.

The price of global benchmark Brent crude has risen from around $45 a barrel in June 2017 and peaked at over $85 this month on bullish bets by speculators.

OPEC, Russia and others such as U.S. shale companies had increased production sharply since May, the IEA said, raising global 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.

Supply from Iran during September dropped to a two-and-a-half year low, the IEA said, as customers continued to cut back in the run-up to new sanctions, which start on Nov. 4.

Iranian output fell to 3.45 million bpd, it said, down 180,000 bpd month-on-month. Iranian oil exports in September fell to 1.63 million bpd, down 800,000 bpd from recent 2Q18 peaks, the agency estimated.

"The decline may deepen significantly ahead of U.S. sanctions - and subsequently as final cargoes are delivered," said the IEA, which advises major oil consumers on energy policy.

But the outlook for world oil consumption is faltering, the IEA said as it 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," it said.

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.

(Reporting by Christopher Johnson; Editing by Dale Hudson and Alexander Smith)