Oil prices retreated amid the IEA's prediction, with Brent crude falling 0.5 percent to $55.48 as of 7:21 a.m. Thursday. West Texas Intermediate crude was recently down 0.2 percent at $51.06.
January non-OPEC output rose by 2.1 mln bpd year on year while OPEC output contracted by similar amount.
Q1 demand for OPEC crude set to plunge to 27.2 mln bpd.
The IEA expects demand to drop for oil produced by the Organization of the Petroleum Exporting Countries, or OPEC.
Some officials and analysts were still hopeful that the demand impact would remain limited to China.
Oil demand in China has dropped already because of the virus and the Organization of the Petroleum Exporting Countries has lowered its 2020 demand forecast for its crude by 200,000 bpd, prompting expectations that OPEC and its allies including Russian Federation could agree further supply cuts when they next meet, possibly later this month.
The market is signalling that some near-term demand for oil remains. The spread between the first-month April Brent future and the May contract has narrowed to a discount of only 1 cent a barrel on Friday from a discount of 33 cents a week ago.
The epidemic could shake crude prices even more than threats to security of supply, such as tensions in Iraq and a fall in Libyan oil production, the IEA notes.
UBS investment bank said in a note that commodity demand concerns were likely to linger and "the asset class should display a fair bit of volatility in the coming weeks".
The price action also suggests that traders are a little more optimistic that the coronavirus outbreak has reached a peak and that the demand crisis may be ending.
The Chinese economy is expected to grow at its slowest rate since the financial crisis in the current quarter, according to a Reuters poll of economists who said the downturn will be short-lived if the outbreak is contained.