IEA cuts world oil demand forecast on weak economy

By Barbara Lewis and Alex Lawler

LONDON (Reuters) - The International Energy Agency (IEA) on Friday cut its oil demand growth forecast for 2008 to the lowest rate in 15 years, citing economic weakness and "a spiralling liquidity crisis."

In a monthly report, the agency, adviser to 28 industrialised countries, reduced its 2008 demand growth forecast by 250,000 barrels per day (bpd) to 440,000 bpd. This represents a 0.5 percent growth rate -- the lowest in percentage terms since 1993.

The report adds to evidence slowing economies and the worsening financial crisis are reducing oil consumption. Oil prices fell further after it was released to a one-year low near $81 a barrel.

But the IEA cautioned against too much focus on demand, saying the credit crisis would also impact investment in bringing on new oil supply. Already, world output fell by more than 1 million bpd in September partly because of storm disruption in the U.S. Gulf, it said.

"The key message is the downward adjustments in the demand numbers in line with the weaker economic prognosis," IEA analyst David Fyfe told Reuters. "But we've also lost quite a lot of oil on the supply side in recent months."

World oil demand is expected to average 86.5 million bpd in 2008. The agency also lowered its growth forecast for 2009 as well, cutting the prediction by 190,000 bpd to 690,000 bpd.

The Paris-based agency said the impact of global economic weakness was most acute in developed countries while developing economies were showing "a degree of resilience."

"Although non-OECD slowdown is also likely, it is by no means certain that growth will be choked off altogether," it said.