The lack of investment in new oil projects risks creating a new market upheaval in several years, the International Energy Agency warned on Wednesday.

"We estimate that, if new project approvals remain low for a third year in a row in 2017, then it becomes increasingly unlikely that demand... and supply can be matched in the early 2020s without the start of a new boom/bust cycle for the industry," the IEA said in its annual World Energy Outlook report.

The oil market has been plagued for the past couple of years by oversupply, with the price of a barrel of oil plunging from over $100 (933 euros) in mid-2014 to under $30 at the beginning of this year.

As a result, oil companies have slashed investment into new projects.

After peaking at $780 billion in 2014, investment in exploration and production dropped by $200 billion last year, and should drop by another $140 billion this year, according to the IEA.

It said in 2015 the approval of the development of new conventional crude projects was the lowest since the 1950s.

As it takes between three and six years to get new conventional oil fields producing, without a rebound in investment there is a risk of a mismatch between supply and demand, the IEA said.

The IEA estimates that $700 billion per year in investments in exploration and production are needed per year, and $80 per barrel the price to balance supply and demand of oil in 2020. Brent crude was trading around $46 per barrel on Tuesday.

OPEC cartel made a similar warning last week.

"While the recent oil market environment has been one of oversupply, it is vital that the industry ensures that a lack of investments today does not lead to a shortage of supply in the future," the cartel said in its annual report on long-term market trends.

Both the IEA and OPEC see demand for oil continuing to grow through 2040.

The IEA's baseline scenario is premised on nations implementing their pledges to cut planet-warming greenhouse gases following the entry into force this month of a worldwide pact to battle global warming.

Dubbed the Paris Agreement, it is the first-ever deal binding all the world's nations, rich and poor, to a commitment to cap global warming caused mainly by the burning of coal, oil and gas.

- Industry can't ignore risks -

Yet even with full implementation of Paris Agreement pledges, the IEA sees a 30 percent rise in global energy demand due to economic development, driving an increase in consumption of all modern fuels.

However demand for oil will see only a tiny gain, from around 92.5 million barrels per day last year to over 103 million barrels per day by 2040, or roughly a 0.4 percent gain per year.

The IEA, which advises advanced market economies on energy policy, sees natural gas use jumping by 50 percent as nations try to meet increasing demand for electricity and reduce use of heavily polluting coal.

However, countries could go further than the Paris pledges to limit the rise in global temperatures to 2 degrees Celsius and the IEA said the impact on oil would be considerable, as demand would return to the levels of the late 1990s, under 75 million barrels per day.

Although it acknowledged the challenges are immense just to attain the 2C target, the IEA said "the fossil-fuel industry cannot afford to ignore the risks that might arise from a sharper transition".

The agency said a "fully fledged policy drive to decarbonise the energy system will have important consequences for future revenues of fossil-fuel companies and exporting countries".