Oil demand in Western countries is set for its biggest fall in 25 years as the global economic slowdown intensifies and consumers respond to high prices.

Demand in the economies of the Organisation of Economic Co-operation and Development (OECD) countries is set to average 48.6 million barrels per day this year, a decline of 1.3 per cent or 620,000 barrels from 49.2 million in 2007, the International Energy Agency says.

Gareth Lewis-Davies, director of commodities research at Dresdner Kleinwort, points out that this represents the largest fall since 1983, when OECD demand fell by 684,000 barrels per day in the years after the Iranian revolution. He cited growing evidence that high prices were forcing basic shifts in consumer behaviour in these countries as people used fuel more sparingly and reduced car use.

The US Transportation Department said this week that Americans drove 4.7 per cent, or 12.2 billion, fewer miles in June compared with a year earlier. It was the eighth consecutive monthly fall.

Mr Lewis-Davies said that collapsing demand from Western economies had been a key factor driving a rapid fall in oil prices, which have dropped almost 22 per cent since reaching a record high of $147 per barrel on July 11. Yesterday, the price of a barrel of crude was about $115. He said an exit of speculative money betting on rises in the oil price had amplified the drop.

Falling Western demand for crude has been largely offset by strong demand from developing countries such as China, where fuel is still subsidised. Globally, oil consumption is expected to grow slightly this year by 760,000 barrels per day to an average of 86.8 million barrels, the weakest global growth rate since 2002.

In 2004, explosive demand from China triggered a 2.9 million barrel rise in global demand compared with the previous year. All of the growth this year is expected to come from developing countries. Some analysts believe that oil demand in non-OECD countries will fall to its weakest level for years and could brush close to zero.

Iain Armstrong, a Brewin Dolphin analyst, said that China's decision to shut down large tracts of its industrial base during the Olympics to help to cut pollution was likely to reduce significantly non-OECD demand for fuel.

Beijing's push to stockpile fuel in the run-up to the Games to ensure there are no shortages is likely to lead to a fall in demand over the next few months as those supplies are used up.

Weaker economic growth driven by falling demand for manufactured goods from developed countries is likely to be another factor dragging on non-OECD oil demand for the remainder of this year.

Mr Lewis-Davies said that it was harder to make accurate predictions about non-OECD oil demand because of a lack of reliable, up-to-date data.

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