The revision follows the release of weaker economic forecasts by the International Monetary Fund, which said on Nov. 6 that the world's developed economies are headed for the first full-year contraction since World War Two.
"This is very much related to the dramatic worsening of global economic conditions over the past few weeks as a result of the ongoing financial crisis," the IEA said in its monthly report.
The adviser to 28 industrialised countries also cut its 2008 oil demand growth estimate by 320,000 bpd to a marginal 120,000 bpd -- the lowest in absolute terms since 1985.
World oil demand is now expected to average 86.2 million bpd in 2008, while in 2009 it is forecast to expand to 86.5 million bpd.
Oil prices were lower after the report was released. U.S. crude was down 3 cents at $56.13 a barrel at 1013 GMT. It has fallen sharply from a record high of $147.27 in July.
"The IEA report was every bit as bearish as expected," said Christopher Bellew, an oil broker at Bache Commodities Ltd.
The forecast for lower demand may add to calls from members of the Organization of the Petroleum Exporting Countries for a further cut in oil output to bolster prices.
OPEC, source of two in every five barrels of oil, is discussing whether to hold an emergency meeting on Nov. 28 in Cairo, Iran's OPEC governor told Reuters on Thursday.
The group agreed in October to reduce supply by 1.5 million barrels per day, about 5 percent, as of Nov. 1, but the move has failed to stem the price decline.
In its report, the IEA lowered its forecast for demand for OPEC oil in the last three months of 2008 by 600,000 bpd and trimmed the outlook for 2009 by 500,000 bpd.
The call on OPEC crude averages 31.1 million bpd in the fourth quarter of 2008, according to the IEA, much lower than their production in October of 32.1 million bpd.
As demand slows, oil stocks in Organisation for Economic Cooperation and Development (OECD) countries are rising. At the end of September they equalled 55 days of forward cover -- 2.2 days above the 2003-2007 average.
Preliminary October figures show a rebound of 51 million barrels, potentially raising stock cover to 56 days, it said.
While demand growth is now expected to be minimal over the next two years, a fall in investment in the oil sector has raised fears of tight global supplies when the economy recovers, causing prices to soar.
"Slowing oil sector investment in 2009 sows the seeds of a sharp tightening in market fundamentals if major projects are delayed, the impact being felt three to five years hence after economic recovery regains a foothold."
Author: Jo Amey
