Oil refinery 1

Oil prices may have hit their lowest point and could start to return to levels seen before the crash, the International Energy Agency (IEA) has said.

The organisation said lower output from some of the world's biggest producers was helping to reduce oversupply that has hampered the market for more than 18 months.

In February, Saudi Arabia, Venezuela, Qatar and Russia agreed to reduce production in an attempt to boost prices. Iran criticised the deal, describing it as "illogical". It was feared that the removal of production sanctions on Iran would lead to a huge increase in supply. But the IEA said the effects of Iran's supply was not as big as first thought.

Oil prices are still down by around 70% on August 2014. But in the first few weeks of 2016, they fell even further to around $27 per barrel. Earlier this week, Brent crude oil was trading at $40 per barrel for the first time this year.

The IEA is now estimating that output from non-Opec (Organization of Petroleum Exporting Countries) would fall by 750,000 barrels per day, compared with previous forecasts of 600,000. It also expects production in the US to fall 500,000 barrels per day.

"There are clear signs that market forces... are working their magic and higher-cost producers are cutting output," the IEA said.

It added: "Meanwhile, Iran's return to the market has been less dramatic than the Iranians said it would be; in February we believe that production increased by 220,000 bpd and provisionally, it appears that Iran's return will be gradual."

"For prices, there may be light at the end of what has been a long, dark tunnel, but we cannot be precisely sure when in 2017 the oil market will achieve the much-desired balance. It is clear that the current direction of travel is the correct one, although with a long way to go," the IEA said.