Also, Global economic slowdown could put a lid on oil prices but there is a risk nasty supply surprises could reignite a market rally, the International Energy Agency said on Thursday.
The agency, which advises industrialized countries on energy policy, said oil market fundamentals had clearly eased since the start of the year and stocks had built up significantly over the last few months.
But the IEA said any move by the Organization of the Petroleum Exporting Countries to reduce production to its declared output target of 30 million barrels per day (bpd) could have a dramatic impact on the market.
Strict adherence to the previous 30 million bpd quota risks a renewed and potentially damaging price surge, the IEA said in its monthly Oil Market Report.
The IEA said the 12 members of OPEC pumped close to 31.8 million bpd in June, before the imposition of an EU oil embargo on Iran on July 1 and tougher U.S. sanctions.
This was 1.3 million bpd higher than its estimate for the demand for OPEC crude oil this year and in 2013 and helped contribute to a further increase in global oil inventories.
Oil prices have fallen by around a quarter over the last three months with North Sea Brent dipping below $100 per barrel on Thursday, down from a high above $128 in March as supply has outstripped demand.
The IEA kept its estimate of global oil demand growth steady at around 800,000 bpd for this year and said demand would increase by around 1 million bpd in 2013.
The agency's estimate of global demand next year is around 200,000 bpd higher than forecasts by both the U.S. Energy Information Administration and OPEC, but still reflects a market slowdown in oil demand growth in the industrialized economies.