Rising interest rates and energy costs, coupled with increasing oil supplies and fatter inventories, could start to take the steam out of overheated oil markets, the agency said. "It would appear that the risks are, for the first time in two years, edging towards the downside," the agency said in its monthly oil-market report.
The IEA, the energy-security watchdog for industrialized nations, also predicted a growing cushion of spare oil-production capacity to absorb any demand shocks.
The price of crude-oil futures contracts on the New York Mercantile Exchange fell nearly $2 a barrel to settle at the lowest level in six weeks, as the IEA report eased worries about tight global oil supplies later this year. Benchmark light, sweet crude futures for May delivery fell $1.85 to settle at $51.86 a barrel.
"There's a lot more slack in the system than six months ago," the report's editor, Lawrence Eagles, told CNBC Europe.
Still, some analysts said the IEA's rosier outlook is premature. "The tone is much more reassuring than the last report, but it's difficult to say why,
since the figures are mostly the same," said Barclays Capital analyst Kevin Norrish.
The IEA revised lower its estimate for world oil-demand growth this year, albeit by a marginal 50,000 barrels a day, to 1.77 million barrels a day.
Outright demand is seen slightly lower than expected, at 84.27 million
barrels a day, reversing a trend of nudging forecasts higher.
Decisions by some Asian governments to ease fuel subsidies are tempering demand growth in the region, the IEA said.
Demand growth in India slowed to 30,000 barrels a day in February from 100,000 barrels a day in January, both compared with a year earlier.
Demand growth in China, the world's second-largest oil consumer, held steady in February at 340,000 barrels a day.
Chinese oil-demand growth for the year still is forecast at 500,000 barrels a day, almost 8%, or half of last year's rate. "Fears of a surge in second-quarter Chinese demand are receding," the IEA
said.
In other commodity markets:
NATURAL GAS: Prices on the Nymex fell as the market was unable to sustain early gains. A lack of bullish fundamental news and little technical buying pushed prices lower. Natural-gas futures fell ahead of the sharp selloff in crude oil, but later extended their losses. May natural-gas futures fell 21.5 cents to $7.094 per million British thermal units.
LIVE CATTLE: Prices rose on expectations that beef packers would hold prices steady for slaughter-ready live cattle. Futures prices had traded at a discount to last week's cash prices, traders said, giving the market a reason to rally. Most active June Chicago Mercantile Exchange live-cattle prices rose one cent to 84.675 cents a pound.