Global oil demand will slow in 2016, the International Energy Agency (IEA) said in its latest monthly report, as it warned that the rebalancing of supply and demand in oil markets "has yet to run its course."
Crude oil prices fell to their lowest point in nearly three months in early July, pressured by "ever rising supply" and not helped by the financial turmoil in Greece and China which has unsettled world markets, the IEA said Friday.
Global oil prices fell around 60 percent earlier this year, from around $114 a barrel last June, on the back of a glut in supply and lack of demand amid an uncertain global growth outlook. On Friday, benchmark Brent crude was trading at $59.44 a battle and U.S. light crude was around $53.62.
On the back of this volatility, the IEA forecast that global oil demand growth would slow to 1.2 million barrels a day (mb/d) in 2016, from around 1.4 mb/d this year.
"The rebalancing that began when oil markets set off on an initial 60 percent price drop a year ago has yet to run its course," it said. "Recent developments suggest that the process will extend well into 2016, as shown in our quarterly supply/demand balances for that year."
There were hopes in May and June that prices were on the path to recovery, as supply was taken out of the market. Numerous rigs were closed in the U.S., where production costs are higher than in the Middle East.
However, the IEA said that growth in demand appeared to have peaked in the first quarter of 2015, at 1.8 mb/d and, "will continue to ease throughout the rest of this year and into next as temporary support fades."
The IEA noted, however, that two "curveballs" were contained within its demand forecast: Greece's ongoing financial crisis, to the downside, and Iran – and a potential nuclear deal that could see sanctions on the country lifted -- to the upside.
"A possible Greek exit from European Monetary Union (euro zone) could dampen not only Greek oil product demand, but also potentially curb deliveries across the continent if macro-economic activity were to weaken," the IEA said.
"The upside Iranian risk surrounds the possible removal of sanctions and the additional economic growth and oil product demand that could follow."
Oil prices have not been helped by the decision of the Organization of Petroleum-Exporting Countries (OPEC) not to cut their production ceiling of 30 million barrels a day -- despite the slump in prices and demand.
Indeed, the IEA said that although global oil demand has not picked up, global supply has actually increased. OPEC crude supply, for instance, rose in June to 31.7 mb/d -- a three-year high led by record output from Iraq, Saudi Arabia and the United Arab Emirates (UAE).
This decision not to cut production by OPEC, led by Saudi Arabia, has been widely seen as a strategy to defend OPEC's market share and put pressure on rival U.S. shale oil producers.
And the IEA said this strategy could be working, with "non-OPEC supply growth expected to grind to a halt in 2016, as lower oil prices and spending cuts take a toll."
- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt.