Growing leakage over official output limits by OPEC, record exports from Russia and worries about the slow pace of global economic recovery also have dulled the impact of rising oil demand, the IEA said in its monthly Oil Market Report.
"The perception of geopolitical risk that has been a driving force in the crude oil market since February seems to have eased," said the agency. "Sluggish oil demand, weak refining and high oil stocks at the end of May suggest that the anticipated rebalancing of supply and demand is taking place, but at a slow pace."
Oil prices have fallen sharply from more than $27 in mid-May when worries about the impact of Palestinian-Israeli hostilities on supplies were at a height. Brent on Tuesday eased eight cents to $23.70.
The IEA report is likely to bolster opinion among OPEC producers that there is no need to raise output limits when oil ministers meet in Vienna on June 26.
Output from 10 cartel producers bound by output quotas is on the rise anyway, the IEA said. Leakage over official limits rose by 290,000 bpd to 1.4 million bpd in May, taking output for the 10 to 23.1 million bpd.
After three consecutive quarters of year-on-year demand contractions averaging 900,000 bpd, second quarter world demand is estimated increasing by 300,000 barrels a day versus the same period, the IEA report said.
The agency previously had expected year-on-year second quarter growth of 100,000 bpd but it said it still expected annual growth of only 420,000 bpd, for average demand this year of 76.5 million bpd. It revised down its third quarter demand growth estimate by 300,000 bpd to 700,000 bpd.
The agency said improved refining margins in China and increased domestic demand had lifted Chinese import requirements.
"But unless Chinese consumption catches up with the recent hike in refinery runs and product imports the trend will reverse in the third quarter as Chinese product stocks are reportedly rising again," it said.
The IEA said the latest data on commercial oil stocks among the industrialized nations of the OECD showed inventories at the end of April at 56 days of demand cover, one day higher than a year ago.
Apart from OPEC, more supply reached international markets from the territories of the former Soviet Union (FSU) where exports hit a new record in May, reaching 5.67 million bpd, the IEA said.
In mid-May the Russian government decided to phase out by the end of June the reduction of crude exports in cooperation with OPEC curbs.
May FSU crude exports rose by 140,000 bpd from April to 3.99 million bpd and May products exports were steady at 1.69 million bpd.