An economic slowdown in the United States and other industrial nations will continue to damper oil consumption growth, the International Energy Agency announced Tuesday, as it again trimmed its global oil demand estimate for 2008.

The IEA lowered its forecast for 2008 global oil demand by another 390,000 barrels to 86.8 million barrels per day from about 87.2 million barrels, the association announced in its latest monthly report. At the same time, the IEA revised its analysis of 2007 oil usage, saying the world used about 85.8 million barrels per day last year.

Oil traded $1.50 higher to $125.70 per barrel in Tuesday afternoon trading. Oil hit an all-time high of $126.98 in electronic trading earlier in the day and has risen about 100% in the past 12 months.

The IEA cited "strong demand from Asia and a tight distillate market" as the primary reasons for oil's record rise, but also noted production outages in Nigeria and the North Sea.

Criticizes price controls

Unlike last month's report, IEA shied away from predictions regarding oil's price in the months and quarters ahead, but did take pains to point out what it argues are the negative impact of price controls, which are practiced in many emerging market countries, Reuters reported Tuesday. The IEA said price controls and subsidies are "leading to severe distortions and mounting costs for public purses."

The IEA said slower economic growth, the aforementioned higher prices, and a 2006 baseline adjustment suggest Organization for Economic Cooperation and Development demand will contract for the third straight year in 2008.

Strong emerging market demand

However, demand growth in emerging markets, led by China and the Middle East, will remain strong in 2008, rising about 3.7% or by about 1.4 million barrels per day.

Developed world oil demand growth had already started to slow with the U.S. economic slowdown, the IEA said, a fact that should have limited oil price gains. However, strong economic growth in developing markets, geopolitical tensions, and OPEC's status-quo stance regarding production have offset the above, and sent oil's price higher, the IEA noted.

Meanwhile, the IEA put global oil supply in April 2008 at 86.8 million barrels per day, a decline of about 400,000 barrels, due to lower production from the North Sea, OPEC and from countries that comprised the former Soviet Union.

Also, oil inventories in OECD nations were virtually unchanged in the late March 2008 survey, the latest period for which inventory data was available. Inventories declined just 1.3 million barrels, for a 53.3-day oil supply at current consumption rates.

Oil Analysis: The IEA's report points to a continued slowdown in developed world oil demand growth, although emerging market demand growth remains strong. As noted, the former should have resulted in a decline in oil's price, but no such discount occurred or is in the offing. Oil traders and producers are likely to look right past the develop world's economic slowdown and emphasize the small safety cushion between global oil's supply and demand as a reason to continue to bid the price up. Some oil players will also cite other bullish factors for oil (weak dollar, U.S. inflation, institutional investor positions in oil, geopolitical concerns) as reasons to bid-up the price of the world's most important commodity.