IEA cuts world oil demand forecasts

By Alex Lawler

VIENNA (Reuters) - World oil demand will grow more slowly than expected in the last quarter of 2007 and next year, and high prices may further curb consumption, the International Energy Agency said on Wednesday.

The revisions come a day after OPEC agreed to raise oil output, a move that followed months of pressure from the Paris-based IEA which has been worried about the impact of near-record prices on consumers.

The IEA, adviser to 26 industrialised countries, said in its monthly Oil Market Report world demand would rise by 2.35 million barrels per day (bpd) in the fourth quarter, 240,000 bpd less than expected last month.

OPEC on Tuesday raised oil output by 500,000 bpd, its first formal increase in more than a year, in a gesture to consumer nations worried by the economic impact of $78 oil and rapidly diminishing fuel stocks.

"It's fair to say it's a smaller increase than we would have hoped for," said Lawrence Eagles, head of the IEA's Oil Industry and Markets Division, of OPEC's move.

"We hope if there are any further signs of tightening that they would respond accordingly."

In lowering its demand estimates, the IEA cited weaker than expected consumption in June and July and said it was too early to assess the impact of fallout from the subprime mortgage crisis on the U.S. economy.

"Mild weather and interfuel substitution have contributed to the fall in demand. Looking ahead, continued high prices may further dent demand," the report said.