In its latest monthly market report released early on Friday, the International Energy Agency forecast that oil prices may have bottomed as shrinking supplies outside OPEC and disruptions inside the group erode the global surplus. This comes just one month after it had a far gloomier assessment of oil prices, warned on excess supply, and asked if the market was witnessing a “false dawn.”

“There are signs that prices might have bottomed out,” the Paris-based adviser said. “For prices there may be light at the end of what has been a long, dark tunnel” as market forces are “working their magic and higher-cost producers are cutting output.”

It predicted that production outside the Organization of Petroleum Exporting Countries will decline by 750,000 barrels a day this year, or 150,000 barrels a day more than estimated last month, the agency said. Markets are also being supported by output losses in Iraq and Nigeria, and as Iran restores production more slowly than planned following the end of international sanctions, Bloomberg reports.

As a reminder, on comes just one month after it had a far gloomier assessment “supply may exceed consumption by an average of 1.75 million barrels a day in the period, compared with an estimate of 1.5 million last month.” Curious since then prices are far higher, and are now pushing into territory where even shale companies are considering resuming production.

As shown in the chart below, oil prices have recovered 50 percent from the 12-year lows reached in early February when news of possible oil production cuts by OPEC unleashed a dramatic rally; instead all that was unveiled was a tentative production “freeze”, one which may never happen as Iran has sternly refused to comply with the term. This “freeze” which caps Russian and Saudi production at already record high levels, while currently supporting prices, is unlikely to have a substantial impact on markets in the first half of the year, the IEA said.

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