World oil demand is set to expand at its slowest rate in six years during 2008 as high prices and the dismantling of Asian subsidy regimes start to choke off demand, the International Energy Agency (IEA) said this morning.

Global oil consumption will increase by 800,000 barrels per day this year, 230,000 barrels lower than its previous forecast, according to the IEA’s monthly Oil Market Report.

The IEA, which advises 27 Western countries on energy issues, predicted that global demand would average 86.8 million barrels per day this year.

However, it added that supply growth this year “has been poor”, and even higher prices would be required to ensure the market remains in balance.

“The lull in oil demand growth, however, may only be temporary as strong economic growth remains the key driving force,” the Paris-based agency said, pointing out that there was little chance of a cut in subsidies in China, one of the world’s biggest consumers, or in the Middle East.

In recent weeks, the soaring price of oil, which reached a record high of $139 a barrel last week, has forced the governments of India, Indonesia, Malaysia, Sri Lanka and Taiwan to trim their subsidy regimes on fuel, which the IEA says is likely to temper demand.

Oil demand in the US, easily the world’s biggest consumer, is also expected to fall by up to 2.5 per cent this year to 20.3 million barrels a day.

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

Adding to concerns about soaring energy costs, Alexei Miller, chief executive of Gazprom, painted a gloomy picture of further price rises to come.

During a strategy presentation in France, he said he expected oil prices to rise to $250 per barrel in the longer term.

The IEA is carrying out a sweeping study this year of the world’s oil supplies until 2030 amid concerns about global supplies.

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax