updated 6/10/2008 11:06:47 AM ET 2008-06-10T15:06:47

The International Energy Agency lowered its forecast for global oil demand this year amid surging prices, but said Tuesday that global hunger for oil is knocking markets out of kilter.

“Supply growth so far this year has been poor and higher prices are needed to choke off demand to balance the market,” the Paris-based watchdog said in a monthly report.

The agency predicted global oil product demand in 2008 to grow by 0.9 percent, or 800,000 barrels a day, down from the 1.2 percent, or 1 million barrels, forecast earlier.

The change follows decisions by several developing countries to reduce fuel subsidies because of high oil prices. The agency has also made upward revisions to its 2006 and 2007 data.

The agency lowered its 2008 global demand forecast to 86.8 million barrels a day, down 80,000 barrels from last month. The agency has been steadily lowering its demand predictions for the past several months as oil climbs repeatedly into record territory.

Oil prices have risen more than 8 percent since the IEA’s last monthly report. Light, sweet crude for July delivery rebounded 67 cents to $135.02 a barrel in Singapore trading Tuesday.

The IEA predicted U.S. oil demand would contract by up to 2.5 percent this year to 20.3 million barrels a day.

“Airlines are cutting flights. ... Consumers are protesting and politicians’ statements reflect that mood,” the report said.

Lower fuel taxes or higher subsidies would, the agency said, be “absolutely the worst response.”

U.S. presidential candidate John McCain has proposed suspending gasoline taxes for the summer, and French President Nicolas Sarkozy is pushing for a cap on fuel taxes across the 27-nation European Union.

The agency reported reduced oil consumption in rich countries that make up the 30-nation Organization for Economic Cooperation and Development, but noted few signs of slowing demand in developing countries, especially China and India.

The IEA is preparing a landmark forecast for later this year on the world’s oil supplies through 2030, prompted by concern about the volatility of world oil markets and uncertainty about supply levels.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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