Industrialised countries could be facing the prospect of an oil supply squeeze and higher prices later this year unless production is lifted, according to a report just released by the International Energy Agency.

In its latest Oil Market Report, the IEA says recent production gains will not be sufficient to meet market needs in the second half of the year when consumption picks up.

"Crude prices remain elevated and forecast balances call for a significant rise in OPEC production from current levels for the second half of the year," the IEA said.

The IEA says OPEC nations will have to increase third quarter production by another 900,000 barrels per day from current levels to 30.7 million barrels per day to meet the expected demand.

"While OPEC has more than enough capacity to deliver, it remains to be seen whether it will manage to overcome the above-ground hurdles that have plagued some of its member countries lately," the report added.

The OPEC cartel controls about 40 per cent of global oil supplies and includes members such as Libya and Iraq, which have struggled to maintain exports.

Furthermore, intensifying political turmoil in non-OPEC nations, Colombia and South Sudan, and technical problems in Kazakhstan have added to the supply problems.

The IEA noted that ongoing tensions between Russia and Ukraine have also helped push up oil prices recently.

The agency says surging Chinese demand is also having a significant impact, with imports reaching record levels of 6.8 million barrels per day last month.

"How Chinese importers plan to use those barrels remains an open question," the report noted.

The IEA says reports out of China suggest that it has increased budget allocations to fill its recently completed strategic petroleum reserve facilities.

However, China also has a rapidly growing and under-utilised refining industry, with two new giant plants adding to the surplus capacity.

The IEA says rather than just going into strategic reserves, the oil could quickly find its way back onto global markets.

"Having become net exporters of key products in March, (Chinese) refiners may simply be planning to make more use of their plants, setting the stage for even higher product exports," the agency speculated.

"In that case too, consumers will enjoy more supply, but the effect on international markets will play out differently."