Oil markets are better-supplied for the first time since 2009 as “sluggish” demand and OPEC output at more than a three-year peak eased inventory depletion, according to the International Energy Agency.

Global oil inventories may have increased by more than 1 million barrels in the first quarter, the Paris-based IEA said in its monthly Oil Market Report today. The agency kept its world demand estimate for 2012 little changed at 89.9 million barrels a day. Iranian (OPCRIRAN) output may tumble more than 20 percent by mid-summer as international sanctions take effect, it said.

“The cycle of repeatedly tightening fundamentals evident since 2009 has been broken for now,” said the IEA, which advises 28 nations on energy policy. “The earlier tide of remorseless market tightening looks to have turned.”

Brent crude futures have climbed 12 percent this year, trading at $120 a barrel today in London, amid concern that tougher embargoes against Iran will cut supply and stoke political tension in the Middle East. Prices have been tempered by “speculation on a potential strategic stock release,” said the IEA, which didn’t comment on the likelihood of such emergency measures in its report.

World Demand

Worldwide oil demand will increase by 800,000 barrels a day in 2012, or 0.9 percent, to 89.9 million a day, according to the IEA. That’s 20,000 barrels less than forecast last month.

Inventories held by companies in the 34 most-industrialized nations fell by 12.4 million barrels in February, compared with an average drop for the period of 38.8 million, the IEA said.

While that leaves supplies in those countries, which make up the Organization for Economic Cooperation and Development, below their five-year average, at 2.63 billion barrels, in terms of days of consumption stockpiles rose by 1.2 days to 59.6 days.

An embargo on Iranian crude by the European Union and allied nations scheduled to take effect in July has already cut the Islamic republic’s production by 250,000 barrels a day to 3.3 million a day, a level which may fall to 2.6 million in the summer, the IEA estimates.

The Organization of Petroleum Exporting Countries, responsible for 40 percent of global supply, has “already shown that they can step into the breach to replace lost volumes,” the agency said.

Calming Effect

OPEC (OPCRTOTL) bolstered production by 135,000 barrels a day last month to 31.43 million a day amid higher output from Libya (OPCRLIBY) and Iraq, the IEA estimates. That’s about 1.3 million barrels more than the producer group will need to provide this year, according to the IEA. OPEC will next meet for a review of production targets in June.

Output growth outside OPEC may also have a “calming effect on prices as the year progresses,” the IEA predicted.

While the agency holds a “fairly cautious view” on the recovery of production after a slump of 500,000 barrels a day in March amid losses in the North Sea, Canada, Yemen and Sudan, it expects non-OPEC supply to increase later in the year.

Output from non-OPEC producers will rise by 700,000 barrels a day this year to an average of 53.4 million barrels a day in 2012, according to the IEA.

Source: Bloomberg