Oil Supply Tightens as Prices Drop

Oil markets are beginning to tighten after a dramatic collapse in prices over the last year, reducing production in many parts of the world and stimulating extra fuel consumption, the West's energy watchdog said on Friday.

The International Energy Agency (IEA) said a move by the world's big oil exporters in OPEC, led by Saudi Arabia, to defend their market share "regardless of price" appeared to be working. The strategy was driving out costly, inefficient production from other parts of the world, it said.

"Oil's price collapse is closing down high-cost production from Eagle Ford in Texas to Russia and the North Sea," the IEA said in its monthly report.

The agency, which advises the world's biggest economies on energy policy, said the plunge in prices was expected to cut oil production from countries outside OPEC by nearly 500,000 barrels per day (bpd) next year, almost 300,000 bpd more than previously forecast.

U.S. light, tight oil supply could fall by nearly 400,000 bpd next year, the agency said.

The IEA raised its forecast for world oil demand growth this year by 110,000 bpd to a five-year high of 1.71 million bpd and said oil demand growth would moderate to a "still above-trend" 1.36 million bpd in 2016. (Reporting by Christopher Johnson