The oil market has broken a two-year cycle of tightening supply conditions, the International Energy Agency (IEA) said on Thursday, April 12 as demand softens and Saudi Arabia increases output in response to tensions with Iran, Reuters reported.

The agency said in its monthly report that there had potentially been a rise in global oil stocks of 1 million barrels per day (bpd) over the last quarter, and the impact on prices had not yet been fully realized.

"The cycle of repeatedly tightening fundamentals since 2009 has been broken for now," it said. The IEA, which advises 28 industrialized nations on energy policy, said the possibility that countries, led by the United States, could release stocks from strategic reserves, together with a pledge from top oil producer Saudi Arabia to supply clients ahead of this week's negotiations with Iran over its disputed nuclear program, had tempered recent price gains.

Brent crude futures rose to highs not seen since 2008 of $128.40 a barrel in early March, but have since given up those gains to trade at around $120.10 on Thursday.

The IEA said it was not surprising that extra barrels were being sent into storage in the typically slacker demand period of March and April, even though the backwardated pricing structure made storing less lucrative.

Analysts said that while the report initially suggests a well supplied market, there remain concerns about replacing Iranian crude.

Inventories in the OECD industrialized nations saw a weaker-than-average draw of 12.4 million barrels in February to 2.63 billion barrels, according to the IEA.

Although stockpiles remain below the five-year average, the smaller draw means the deficit narrowed to 13.9 million barrels from 40.4 million barrels in January.