Based on those trends, and even with the prospective increase in Iranian production, the oil market is likely to move closer into balance by the latter part of this year. That will still leave a significant inventory overhang that will take some time to work off. But it seems likely that the market will show at least some signs of turning by the end of this year.

Supply may exceed consumption by an average of 1.75 million barrels a day in the period, compared with an estimate of 1.5 million last month, and the excess could swell if OPEC adds more output, the IEA said. Iran raised production in January following the removal of international sanctions, Iraqi volumes reached a record and Saudi Arabia also ramped up output. The agency trimmed estimates for global oil demand.

In a stark assessment of the oil market, the International Energy Agency warned of an oil overhang of at least 1m barrels a day for a third consecutive year in 2016.

The country's energy minister, who said in December that the global oil market could return to a balance by the end of 2016, as long as producers do not raise output from current levels, said on Thursday this may not now happen until early 2017.

West Texas Intermediate crude for February delivery declined to $36.58 a barrel on the New York Mercantile Exchange, after falling 0.8 percent Monday. U.S. crude inventories are forecast to keep supplies more than 130 million barrels above the five-year seasonal average, according to a Bloomberg survey before government data Wednesday.

Moody’s last month also projected average prices of West Texas Intermediate crude at $40/bbl in 2016, $45/bbl in 2017, and $50/bbl in 2018. The 2016 price is down $8/bbl from the firm’s earlier forecast.

“We see the market balancing some time in 2016. We see demand ultimately exceeding supply...Prices in due course will respond,” he said.

The demand outlook for next year is looking softer mainly due to recent downgrades to the macroeconomic outlook and expectations that crude oil prices will not see repeats of the heavy losses of 2015.

The global oil market is healthier than it looks, signaling that crude’s plunge to six-year lows has probably gone too far.

Falling oil prices have resulted in much lower gas prices in many parts of the word. As a result, gas demand is enjoying the tailwind of substantial price drops while the upstream sector is suffering amid large capital expenditure cuts.