The Dow Jones industrial average was down 1.4 percent, closing at 18,066.75. Technology, banking and energy shares all declined; Apple was the only Dow component that rose. The biggest U.S. shale oil company, Continental Resources, dropped 5.7 percent.
The oil market dragged much of the stock market down. On the supply side, rising output by members of the Organisation of the Petroleum Exporting Countries has more than made up for falling output among non-OPEC countries, especially the United States, formerly the engine of non-OPEC supply increases, the IEA said.
In the United States, the drilling rig count published September 9 by the oil services company Baker Hughes rose by 11 to 508, but the active rig count was still down 340 from a year earlier. The IEA estimated that since May the United States had suspended 460,000 barrels a day of high-cost production.
But OPEC's low-cost producers Saudi Arabia, Kuwait, Iraq and Iran - where production costs are often lower than $10 a barrel - cranked up output, with Kuwait and the United Arab Emirates pumping at record highs. Saudi Arabia and Iran each produced 1 million barrels a day more than they did in late 2014.
The increase by Iran, which has been recovering from years of economic sanctions following the international agreement limiting its nuclear program, has been swifter than the IEA expected. Iran exported 2.2 million barrels a day, the same level it had done before international sanctions were tightened in 2012.
The high Saudi production level overtook U.S. output, the IEA said, making the kingdom the world's largest producer when including natural gas liquids. OPEC also revised upward its own forecast for global supplies on Monday.
Last week Russia, one of the world's three biggest crude oil producers, and Saudi Arabia discussed cooperating on a freeze in output, but the pair have flirted with cooperation in the past to no avail. Political differences, such as Saudi support for Syrian rebels seeking to oust Russia-backed Syrian President Bashar Assad, have fueled mutual suspicion and inhibited cooperation.
"When will the world oil market return to balance? That is the big question today," the IEA wrote in its closely watched monthly oil market report. "With the price of oil at current levels, one would expect supply to contract and demand to grow strongly. However, the opposite now seems to be happening. Demand growth is slowing and supply is rising."
The agency had earlier forecast that demand would catch up with supply and that prices would increase, but it said on Tuesday that "supply would continue to outpace demand at least through the first half of next year."
The IEA's scenario would mean prolonged pain in the oil industry, while promising modest fuel costs for consumers. It also affects calculations by the Federal Reserve by keeping a lid on inflation. And it helps limit the trade deficit in the United States, which remains a major net importer of crude oil.
Oil inventories also rose in the industrialised world, the agency said, increasing the overhang that will continue to limit price increases in the months ahead. The IEA said stockpiles would continue to grow worldwide.
The agency called the supply side "confounding." It said "despite oil's collapse and resulting investment cuts, global oil production is still expanding - although nowhere near the breakneck pace of 2015."
"As for the market's return to balance - it looks like we may have to wait a while longer," the agency said.
