Higher demand and reduced spare Opec capacity will leave oil markets under greater strain between now and 2012 than previously thought, the International Energy Agency said in its latest report.

The IEA, adviser to 28 industrialised countries on energy policy, raised its five-year global oil demand forecast by an average of 700,000 barrels per day (bpd) compared with the previous medium term report issued in December.

Some of the pressure on supplies derives from barrels lost to the Libyan civil war and the IEA did not anticipate a return to pre-war levels until 2014.   

"We have lost 1.5 million barrels per day of capacity from Libya, baseline demand is higher and spare capacity has been eaten into," David Fyfe, head of the IEA's Oil Industry and Markets Division, told Reuters.

"I think the market from 2010 through 2012 is looking tighter than we were thinking six months ago."    

A tightening supply-demand balance on the oil market meant the bull run since late 2010 was largely justified by fundamentals, the IEA said.

Levels of speculative activity were lower than in 2008 when the oil market vaulted to its all-time high of more than $147 a barrel for US crude. So far this year, prices for Brent have peaked at just above $127 a barrel and traded near $115 on Thursday, up almost $2. - Reuters