Global oil markets will remain oversupplied at least until the end of 2016 as demand growth slows and OPEC output booms, putting oil prices under further pressure, the International Energy Agency said today.
The IEA advises developed nations on energy policies.
It said the global oil glut was set to worsen in the months to come as additional supplies from Iran - when and if Western sanctions on the country are removed - would push more oil into storage.
But it added that the pace of record global stock-building would slow down next year and the world was very unlikely to run out of storage capacity.
"World oil markets will remain oversupplied at least until late 2016 ...although the pace of global stock builds should roughly halve next year," the IEA said in its monthly report.
Oil prices have tumbled to near-seven-year lows below $40 per barrel in December after OPEC failed to impose a ceiling on its output
The group has been pumping near record levels since last year in an attempt to drive higher-cost producers such as US shale firms out of the market.
US output growth has began to shrink and low oil prices have spurred demand but still not enough to help clear the glut.
Banks such as Goldman Sachs have said oil prices could fall to as low as $20 per barrel as the world might run out of capacity to store unwanted oil.
"As extra Iranian oil hits the market, inventories are expected to swell by 300 million barrels. Concerns about reaching storage capacity limits appear to be overblown," the IEA said.
"Much of the excess oil will be soaked up by 230 million barrels of new storage capacity additions, while US inventories are only 70% full," the IEA added.
"As inventories continue to swell into 2016, there will still be a lot of oil weighing on the market".
The IEA said OPEC's decision last week to impose no ceiling on its output appeared to signal a renewed determination to maximise low-cost OPEC supply and drive out high-cost non-OPEC production regardless of price.
In the mid-term, the glut cannot clear quickly as consumption growth likely peaked in the third quarter of 2015.
Demand growth will likely slow to 1.23 million bpd in 2016 from a five-year high of 1.79 million bpd in 2015 as support from sharply falling oil prices begins to fade, the IEA said.
Meanwhile, Brent crude oil futures fell below $39 per barrel for first time since December 2008 today as the International Energy Agency (IEA) warned that global oil oversupply could worsen in the new year.
US crude oil futures extended losses, falling to $36.12, their lowest since February 2009.