Opec forecast on Monday that oil supply from non-member countries will post a larger-than-expected decline this year due to the collapse in prices, boosting the need for crude from the producer group.

Supply outside the Organization of the Petroleum Exporting Countries (Opec) would decline by 660,000 barrels per day (bpd) in 2016, led by the US, Opec said in a report. Last month, the organisation predicted a drop of 380,000 bpd.

"The analysis indicates that 2016 will be a supply-driven market. It will also be the year when the rebalancing process starts," Opec said.

"Non-Opec marginal barrel production in the next six months will be sensitive to sustained low oil prices."

A drop in non-Opec supply would reduce a supply glut which has prompted oil prices to collapse to below $28 a barrel, the lowest since 2003. Opec's 2014 strategy shift to defend market share and not prices helped deepen the decline.

The price drop has started to slow the development of relatively expensive supply sources such as US shale oil and forced companies to delay or cancel billions of dollars worth of projects, putting some future supplies at risk.

US output will average 13.50 million bpd this year, the report said, down 380,000 bpd from 2015 and the largest drop outside Opec. Output is also vulnerable in places such as the North Sea, Latin America and Canada, stated the organisation said.

But the Opec's report makes no mention of the supply impact of the lifting of Western sanctions on member-country Iran, which on Monday said it was increasing output by 500,000 bpd - which would fill most of the hole left by non-Opec members.

The UAE's energy minister, in the first comment by a Gulf Opec member about Iran since most sanctions were lifted on Tehran, said anyone increasing output during the current oversupply would worsen the situation.

For now, Opec said it pumped less oil in December, reducing the excess in the market. Production including returning Opec member Indonesia fell by 210,000 bpd to 32.18 million bpd in December, the report said, citing secondary sources.

The report points to a 530,000-bpd supply surplus this year if the group keeps pumping at December's rate, down from 860,000 bpd implied in last month's report.

Opec left its 2016 global oil demand growth forecast little changed, predicting global demand would rise by 1.26 million bpd, marking a slowdown from 1.54 million bpd in 2015.-Reuters