The United States has softened its stance on new Iran sanctions after warnings that a possible face-off between the two countries would push oil prices back into the triple digits.
Libyan oil production fell to 527,000 barrels per day (bpd) from a high of 1.28 million bpd in February following the port closures, the NOC said on Monday.
Adding to the bearish mood were signs of a possible relaxation of USA sanctions on Iranian crude exports.
Washington had previously said countries must halt all imports of Iranian oil from November 4 or face US financial restrictions, with no exemptions.
The IEA welcomed in its July report last month's agreement between the Organization of the Petroleum Exporting Countries (OPEC) and Russian Federation to open the taps in order to bring prices down from multi-year highs.
U.S. light crude futures were up 47 cents, or 0.7 per cent, at $74.32. "If these tariffs are introduced, there will be an impact on global growth and demand".
The selling pressure intensified as trade tensions between the US and China raised concerns about demand.
Among Iran's major oil clients, South Korea and Japan have sought waivers but China, India and Turkey have indicated they may not heed U.S. measures.
"Libyan relief changes the conversation about spare capacity", said John Kilduff, a partner at Again Capital Management.
"Rising production from Middle East Gulf countries and Russian Federation, welcome though it is, comes at the expense of the world's spare-capacity cushion, which might be stretched to the limit", the Paris-based IEA said in its monthly report.
Oil prices rallied on Thursday, recouping some ground following sharp losses the previous session after Libya said it would resume oil exports.
"In 2019, EIA forecasts that the United States will average almost 12 million barrels of crude oil production per day", said Linda Capuano, Administrator of the EIA.
Saudi Arabia might have to draw harder than ever before on its spare production capacity as a spiraling economic crisis in Venezuela, renewed USA sanctions on Iran and disruptions in Libya strain global markets, the agency predicted. "We see no sign of higher production from elsewhere that might ease fears of market tightness", it said.