The United States Energy Department and the International Energy Agency (IEA) both lowered their global oil consumption forecasts for this year because of surging prices, but said demand continues to accelerate in developing nations.

Prices dropped back to US$131 per barrel on the news, having hit $139 million last Friday.

The downward revision follows a reduction this month in fuel subsidies by several developing countries that have succumbed to record oil prices. However, the Energy Depart-ment and IEA also said demand for oil and fuel continues growing in those regions, particularly in China.

Reconstruction work in the aftermath of this year's devastating earthquake will boost Chinese oil demand by 5.5 percent this year, a slightly higher forecast than in previous reports, the IEA said.

The reports raise even more questions about whether the world has inched closer to a tipping point at which high energy prices would force changes in behaviour or economic policy.

Debate

"There's a debate on that," said Phil Flynn, an analyst at Alaron Trading Corp in Chicago. "Some would say we're already there."

Protests are erupting simultaneously from the US and Asia to Europe, as fuel prices cut deeper into the money people need for food and other essentials.

Oil consumption is falling more than expected in the industrialised world, according to the monthly report from the Energy Department's Energy Information Administration.

Consumption in nations belonging to the Organisation for Economic Cooperation and Development, like Japan, Germany, Britain and the US, is now expected to fall by 240,000 barrels a day in 2008.

Last month, the department forecast that consumption would be unchanged from last year.

Adviser cuts demand growth forecasts

In its own monthly report, the Paris-based IEA, an energy adviser to Western industrialised nations, cut its demand growth forecasts, projecting that global demand for petroleum products such as gasolene, diesel and heating oil will grow by 0.9 per cent, or 800,000 barrels a day, in 2008. That's down from the 1.2 per cent, or one million barrels, the IEA forecast earlier this year.

The Energy Department raised its average oil price projection for 2008 to US$122 a barrel from US$110 a barrel last month.

Next year, oil prices will average US$126 a barrel, the Energy Department said, up from last month's forecast of US$103.

Oil prices surged to a record of $139.12 last week on the New York Mercantile Exchange. On Tuesday, oil futures traded near US$131 a barrel on the Nymex.

"The combination of rising consumption, further downward revisions in the supply outlook for countries outside of the Organisation of the Petroleum Exporting Countries (OPEC), and low surplus production capacity, reinforce the perception that supply is having a difficult time keeping up with demand growth," the Energy Department said.

Soaring prices are clearly having an impact on demand. The IEA lowered its 2008 global demand forecast to 86.8 million barrels a day, down 80,000 barrels from last month. The agency steadily lowered demand predictions as oil prices climb.

The Energy Department said global oil consumption will rise this year by 1 million barrels per day, down from last month's forecast that consumption would grow by 1.2 million barrels a day.

The IEA predicted US oil demand would contract by up to 2.5 per cent this year to 20.3 million barrels a day.

Airlines cutting flights

"Airlines are cutting flights. ... Consumers are protesting and politicians' statements reflect that mood," the report said.

Rising fuel prices and falling subsidies have sparked protests around the world.

Yet lower fuel taxes or higher subsidies would, the agency said, be "absolutely the worst response."

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.