The International Energy Agency (IEA) issued its monthly Oil Market Report on Tuesday morning. Assuming there are no further shocks to global production, the agency expects the oil market to come into balance in the second half of this year following a “small” inventory drawdown in the third quarter and a “small” inventory build in the fourth quarter.

The agency said that outages in both OPEC and non-OPEC countries cut 800,000 barrels a day from global production in May, down by 590,000 barrels a day year over year. May output totaled 95.4 million barrels a day.

In January the agency had forecast that the supply surplus for the first half of the year would be 1.5 million barrels a day. Through the first five months of the year that surplus has been about half that, 800,000 barrels a day, primarily as a result of supply disruptions and increased demand.

The massive wildfire in Canada took up to 1.5 million barrels a day out of production, and although that will come back, full production has been estimated by others to take until August. Political disruptions in Nigeria have reduced production there to 30-year lows.

Demand rose by 1.5 million barrels a day in the first quarter, compared with the IEA’s estimate for demand growth of 1.2 million barrels a day. As a result, the agency’s full-year estimated demand growth has been increased to 1.3 million barrels a day.

The IEA now forecasts that non-OPEC production will fall by 900,000 barrels a day in 2016 and increase by 200,000 barrels a day in 2017. U.S. shale oil production is expected to drop by 500,000 barrels a day in 2016.

Commercial inventories in Organization for Economic Cooperation and Development (OECD) countries rose by 14.4 million barrels to reach 3.07 billion barrels at the end of April.

But the agency remains cautious:

At halfway in 2016 the oil market looks to be balancing; but we must not forget that there are large volumes of shut-in production, mainly in Nigeria and Libya, that could return to the market, and the strong start for oil demand growth seen this year might not be maintained. In any event, following three consecutive years of stock build at an average rate close to 1 mb/d there is an enormous inventory overhang to clear. This is likely to dampen prospects of a significant increase in oil prices.

The IEA also offered its first outlook statement for next year. Demand growth is forecast to rise at the same rate as this year: 1.3 million barrels a day. Inventories will build slightly in the first half of 2017 and decline slightly by the second half of the year. For the entire year, however, the drawdown on inventories is expected to be just 100,000 barrels a day.

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Markets reacted to Tuesday’s IEA report by pushing prices down to near $48 a barrel for July delivery of West Texas Intermediate (WTI) and down to $49.50 for August-delivered Brent. WTI for July delivery closed at $48.23 on Monday and traded as high as $48.60 before the IEA report.

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