Global oil supply fell by 0.2 million barrels per day in January, while falling demand growth and the resilience of high cost suppliers could lead to continued downward pressure on prices, according to the International Energy Agency.
In its February oil market update, the IEA expected demand growth to fall from 1.6 mb/d in 2015 to 1.2mb/d in the year ahead, with a negative economic outlook in developing nations such as Brazil, China and Russia.
That was despite bullish projections that falling prices would spur demand, the IEA said.
Oil prices have rallied marginally from lows of around $US28 per barrel in mid-January, down from more than $US100/b two years ago.
That has been partly due to an unwillingness of transnational cartel Opec to reduce supply, and a surprisingly slow shake out of higher cost US shale oil players.
IEA forecasts a reduction in production among non-Opec sources of only 0.6b/d in 2016, lower than many senior figures in the industry, it said.
The IEA did note, however, that forecasts of prices as low as $US10 were unlikely to be realistic.
The projections will put further pressure on an already tough oil and gas sector in Western Australia, with oil prices a key metric used in calculations of long term LNG supply prices.
Although such contracts are sealed well in advance, rates are often adjusted at fixed intervals with reference to the oil price.
