IEA sees oil demand cooling as prices soar

London: World oil demand will rise less than expected in 2008 because of record prices and slower growth in the US and elsewhere, the International Energy Agency (IEA) said on Tuesday.

Consumption will rise by 1.03 million barrels per day (bpd), 230,000 bpd less than the previous forecast, the IEA said. The agency has more than halved its estimate from 2.2 million bpd in July 2007 and may cut it further.

"This report sees further downward adjustments to demand, and they may not be the last," said the IEA, adviser to 27 industrialised countries, in its Monthly Oil Market Report.

"Despite an aggressive cut last month in our US demand forecast, further downward revisions are needed this month."

The report adds to evidence that record-high prices are slowing oil use in the industrialised world and also signals pressure on demand in some emerging countries. Oil hit a record $126.40 a barrel on Monday.

Sustained weakness in European consumption could prompt the IEA to lower its demand forecast further. At the same time, reassessment of fuel subsidies in countries such as Indonesia may create more downside risks.

Subsidies

"We're concerned that the removal of subsidies could cause demand shocks in some non-OECD countries," said Lawrence Eagles, head of the IEA's Oil Industry and Markets division.

"Certain non-OECD countries can no longer afford the subsidies and have therefore reached tipping point."

Several countries such as Indonesia, are reassessing the costs of keeping oil price subsidies in place. Indonesia's subsidies on gas-oline, diesel and kerosene are estimated to reach $12 billion in 2008, the IEA said.