International Energy Agency predicts sluggish economic growth will help bring price down from $107 to $89 by 2017

Oil prices could come down over the next five years due to sluggish economic growth around the world and rising oil production in Iraq and North America, the International Energy Agency predicts.

The organisation, which advises most major governments on energy policy, expects the average import price of oil to fall from $107 a barrel this year to $89 in 2017. Problems in the eurozone had dampened expectations for economic growth, it said. "Even China, the main engine of demand growth in the last decade, is showing signs of slowing down," it noted.

Demand will also drop on the back of improvements in energy efficiency, changes in consumer behaviour, and a move away from fossil fuels.

As a result, the agency slashed forecasts for growth in demand between 2011 and 2016 by 500,000 barrels a day, from previous forecasts made last December. That would reduce pressure on Opec dramatically, as the cartel would have to produce only 31m barrels per day until 2017 in order to balance global demand – less than it does at the moment.

Technological advances meant supply had grown more than expected in North America; production in Libya has "defied expectations", while output from Iraq and Saudi Arabia is very strong, it said.

The agency warned: "This mild outlook is partly deceptive, given exceptional uncertainty about the global economy and heightened regional geopolitical risks."

Pockets of new supply in the past year have been a buffer against shortfalls elsewhere, it noted. "Disruptions – whether caused by political turmoil, unplanned maintenance or extreme weather – have been relentless and, taken in aggregate, unprecedented in scope." The last two years had brought home the reality of geopolitical risk in the Middle East and North Africa as a "concrete and immediate possibility".