The International Energy Agency, which coordinates energy policies of industrialized nations, said U.S. and non-OPEC crude output was beginning to fall quickly and increases in Iranian supply had been less than dramatic.

The IEA said it believed non-OPEC output will fall by 750,000 barrels per day this year, some 25 percent more than the 600,000 bpd it previously forecast.

Goldman Sachs remained bearish, saying in a note to clients that prices could fall sharply in coming weeks with record U.S. inventory builds offsetting production declines in the country.

The bank said oil prices need to be low enough to ensure supply is reduced over time, projecting $39 a barrel on the average for global benchmark Brent crude in 2016, down from its previous forecast of $45.

"So now it appears the two sides of the debate are set," said David Thompson of Washington-based commodities broker Powerhouse. "The bearish view of Goldman Sachs versus the IEA on the bullish side."

Brent rose 40 cents, or 1 percent, at $40.45 a barrel by 11:40 a.m. EST (16040 GMT). On the week, it rose almost 4 percent, headed for a third straight weekly gain.

U.S. crude was up 77 cents, or 2 percent, at $38.61 a barrel, after hitting a 2016 high at $39.02. For the week, it was up 6 percent, rising for a fourth week in a row.

The IEA's forecast aside, there could be more supply disruptions, with a source telling Reuters that maintenance works will close Britain's Buzzard oilfield in July for roughly a month. The 180,000 bpd field is the largest contributor to the Forties crude oil stream, one of four crudes which underpin Brent.

However, oil has resumed flowing from Iraq's Kurdistan region to the Turkish port of Ceyhan, sources said, after a pipeline's closure in mid-February removed some 600,000 bpd from the market.

The IEA said it saw global oil and product stocks rising heavily in the first half of 2016, in the range of 1.5 million to 1.9 million bpd, but that would slow to 0.2 million bpd in the second half. The excess itself led some to warn that a premature price recovery could hamper market rebalancing.

"There are clear signs that market forces ... are working their magic and higher-cost producers are cutting output," the Paris-based organisation said.

(Additional reporting by Libby George in LONDON and Henning Gloystein and Manesha Pereira in SINGAPORE; Editing by Marguerita Choy)

By Barani Krishnan