The oil market looks set to tighten further this year, with oil inventories shrinking as supply disruptions and political tensions in the Middle East and North Africa persist for months, the International Energy Agency said Tuesday.

However, although today's supply picture could imply rising prices, there are preliminary signs that the current high cost of oil may already be reducing demand growth, the IEA said. "The surest remedy for high prices my ultimately prove to be high prices themselves," it said.

This mixed picture mirrored moves in oil markets Tuesday morning. Demand fears sent crude futures down briefly in Asian trading, but they quickly bounced back as attention returned to Libya .

At 1215 GMT, the May Brent contract on London 's ICE futures exchange was 65 cents, or 0.5%, higher at $124.62 a barrel.

The emerging stalemate in the Libyan civil war raises the prospect that oil exports from the country, which averaged around 1.3 million barrels a day in 2010, will remain shut down for months longer, the IEA said in its monthly Oil Market Report.

Despite the positive development that the rebel-held Libyan port of Tobruk managed to export a crude oil cargo of around 1 million barrels last week, recent attacks on oil fields in eastern Libya by forces supporting Gadhafi mean further exports are unlikely, it said.

On top of the Libyan shutdown, a further 3 million barrels a day of regional oil production could potentially be affected by political unrest in places like Oman , Sudan , Yemen and Egypt , the report said. Coupled with shrinking Organization for Economic Co-operation and Development stocks and a smaller margin of spare capacity at the Organization of Petroleum Exporting Countries, "even if only fraction of this is genuinely prone to disruption, it does highlight the degree of uncertainty unleashed by the so-called Arab awakening," the IEA said.

However, the extent to which the supply picture will drive prices higher is uncertain, the report said.

"Had the Libyan crisis emerged at a time other than during peak European refinery maintenance, $125 a barrel might already be a distant speck in the rear view mirror," it said. Refinery maintenance shutdowns probably peaked in March and the usual seasonal rebound in activity could add between 2 million and 3 million barrels a day to demand by the summer, the report said.

Despite OPEC's limited response to the Libyan crisis in March, "we are hopeful OPEC will raise supplies where they can and offer barrels to refiners," and ease the pressure this demand rebound will have on the market, said David Fyfe, editor of the Oil Market Report.

Saudi Arabia has the scope to expand exports in May because it "throttled back production" in the second half of March in response to muted demand due to European refinery shutdowns and the Japanese earthquake, the report said.

Preliminary data for January and February also suggest that demand growth may be slowing, the report said. "These trends could signal that high oil prices may have already started to bite," particularly in China and other parts of Asia .

The steady shrinking of year-on-year global oil demand growth, from 4.8% in December to 2.9% in February, is, "reminiscent of 2008, when prices were last scaling to such heady heights," the IEA said.

In 2008, oil prices soared above $100 a barrel early in the year, reaching a peak of $147 a barrel in July. High prices coupled with an economic slowdown led to a dramatic reduction in demand and a subsequent collapse in the oil price.

The IEA maintained its estimate for 2011 oil demand growth of 1.4 million barrels a day.

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