Global efforts to reduce air pollution has lifted the hopes of oil traders, as new shipping regulations are expected to boost demand for lower sulfur fuels, raising demand for crude, as the bank's analysts report.
It trimmed its 2018 world demand growth projection by 40,000 barrels per day to 1.4 million bpd, projecting total consumption at 99.2 million bpd. With the group's compliance to reductions reaching 166 per cent last month, the IEA said markets are set to tighten further as output sinks in Venezuela and the United States remains hawkish on Iran.
The rising price of oil will add to the pressure on motorists' fuel bills.
Brent broke through $80 for the first time since November 2014 on Thursday.
World supply, meanwhile, rose 1.78 million bpd in April from a year earlier, driven predominantly by non-OPEC production.
Opec crude production eased in April to almost 31.7m b/d, even as demand for the cartel's crude is expected at a greater level of 32.2m b/d this year.
He said Iranian oil sales could plunge by 300,000 to 500,000 bpd in the next six weeks as well, after U.S. President Donald Trump's decision this month to withdraw from an global nuclear deal with Iran and revive sanctions that could limit crude exports from OPEC's third-largest producer. The IEA sees demand destruction which will be brought on by higher gasoline prices.
"Aggregate production - both actual and projected - is growing for the majors", S&P Global Ratings said in a report published on Tuesday.
This week's API report seems to have served as a wake-up call for traders after lots of upbeat media reports about strong crude oil demand, helped by EIA's latest drilling productivity report, which estimated that shale oil production in the Lower 48 would jump by a record 144,000 bpd this month, to 7.178 million bpd.
Front-month Brent prices are now nearly $1.80 per barrel more expensive than those for delivery in December.
The nationwide inventory estimate contrasts with forecasts in a Bloomberg survey that show stockpiles declined by 2 million barrels.
The bottleneck in North America likely contributed to a 4.9 million barrel rise in USA crude oil inventories, to 435.6 million barrels, that the private American Petroleum Institute reported on Tuesday.
Since the European Union is unlikely to follow the U.S.in re-imposing sanctions on Iran, the overall impact on the Persian Gulf state's exports will be "far more muted" than in the past, tanker tracker Petro-Logistics said in a note.
For now, the rapidly changing geopolitical landscape will move the attention away from stocks as producers and consumers consider how to limit volatility in the oil market.