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IEA warns oil supply glut will stay in 2016

A top energy watchdog Tuesday warned that oil markets would likely remain oversupplied next year, as oil demand growth slows down amid an expected return of Iranian oil.

The assessment by the International Energy Agency--which represents some of the world's largest oil consumers--is somewhat less upbeat than the Organization of the Petroleum Exporting Countries which Monday said oil markets would start to rebalance themselves next year amid declining U.S. production.

In its closely-watched monthly oil market report, the IEA cut its forecast for oil demand growth for next year by about 200,000 barrels a day compared to its previous assessment in September. It now sees world oil consumption rising by 1.2 million barrels a day in 2016, compared to a five-year-high growth of 1.8 million barrels a day in 2015.

"A projected marked slowdown in demand growth next year and the anticipated arrival of additional Iranian barrels--should international sanctions be eased--are likely to keep the market oversupplied through 2016," the agency said.

The IEA said Iran's production could ramp up towards 3.6 million barrels a day from 2.9 million barrels a day currently once international sanctions are terminated early next year.

But the Iranian increase would come as demand for OPEC's overall production would be lower than expected. The IEA said demand for the group's crude--which make up over a third of global oil consumption--would grow by 200,000 barrels a day less next year than it forecast in the September report. The October report forecast is for 31.1 million barrels a day.

Write to Benoit Faucon at benoit.faucon@wsj.com

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