World oil demand will grow more slowly than expected in the fourth quarter as record-high oil prices prompt some consumers to seek alternatives, the International Energy Agency said on Thursday.
The IEA, adviser to industrialized countries, said in its monthly Oil Market Report demand will rise by 2.03 million barrels per day in the fourth quarter from a year ago, 320,000 bpd less than previously expected.
"There has been a bit of substitution going on, natural gas for oil, which is essentially a price effect," Lawrence Eagles, head of the IEA's Oil Industry and Markets Division, told Reuters.
"There have also been some small downward adjustments to economic growth, which have also played a role."
The cut in fourth-quarter demand follows a similar move by the IEA last month and points to a slightly lower need for oil from the Organization of the Petroleum Exporting Countries in the final months of 2007.
OPEC is set to raise output in November, a move that followed months of pressure from the Paris-based IEA which has been worried about the impact of record oil prices above $80 a barrel on consumers.
The IEA now expects world oil demand to average 87.64 million bpd in the last quarter of 2007, lower than the 87.8 million bpd expected in September.
Even after the revision, the IEA still sees higher demand than some other forecasters. OPEC expects oil consumption in the fourth quarter to average 87.08 million bpd.
Financial markets have been thrown into turmoil since August on concern about the U.S. subprime mortgage crisis. The IEA said it trimmed its assumptions about economic growth "slightly."
Despite slower demand growth and OPEC's supply boost of 500,000 bpd to start on Nov. 1, the IEA remains concerned that supply may tighten later in the year as seasonal demand rises.
Oil inventories in the OECD fell by 21 million barrels in August to equal 53.5 days of demand, below the five-year average, the IEA said.
"Despite the wide range of demand forecasts, there is a broad consensus that supplies will get tighter this winter," said the report.