The global oil market is likely to experience a significant surplus in the new year, the International Energy Agency (IEA) said on Tuesday, as it reassured markets that it is prepared to intervene if necessary to address any potential supply disruptions from Iran.

Oil prices have risen in recent weeks on investor concern that Israel may retaliate against a missile attack from Iran, a major oil exporter and OPEC member, by hitting its oil facilities or nuclear sites.

But the IEA, which manages industrialized countries' emergency oil stocks, said public stocks were more than 1.2 billion barrels, and spare capacity in OPEC, which comprises the Organization of the Petroleum Exporting Countries and allies such as Russia, stood at historic highs.

"As supply developments unfold, the IEA stands ready to act if necessary," the Paris-based agency said in a monthly report on Tuesday.

"For now, supply keeps flowing, and in the absence of a major disruption, the market is faced with a sizable surplus in the new year."

Oil was down more than $3 a barrel toward $74 on Tuesday, pressured by the weaker demand outlook and after a media report said Israel is willing not to strike Iranian oil targets.

China undershoots

Also in the report, the IEA further cut its global oil demand growth forecast for this year, citing weakness in China, a day after OPEC also lowered its demand projections.

World oil demand will rise by 860,000 bpd this year, down 40,000 bpd from the previous forecast, the IEA said. For next year, it sees an expansion of 1 million bpd, about 50,000 bpd higher than expected last month.

For years, China has driven global rises in oil consumption. The IEA has been saying that slower Chinese economic growth and a shift toward electric vehicles have changed the paradigm for the world's second-largest economy.

The agency now expects Chinese demand to grow by only 150,000 barrels per day in 2024, after consumption dropped by 500,000 bpd in August compared to the same month last year, a fourth consecutive month of declines.

"Chinese oil demand continues to undershoot expectations and is the principal drag on overall growth," the IEA said.

OPEC also reduced its forecast for 2024 global demand growth on Monday, but it is still projecting a much stronger expansion of 1.93 million bpd driven in part by a bigger contribution from China. The gap between the IEA and OPEC forecasts is equal to more than 1% of world demand.

While demand slows, non-OPEC nations are driving up supply. The IEA forecasts non-OPEC growth at 1.5 million bpd this year and next, with higher production from the U.S., Guyana, Canada and Brazil – above the rate of demand growth.

"Heightened oil supply security concerns are set against a backdrop of a global market that – as we have been highlighting for some time – looks adequately supplied," the IEA said.