Demand is expected to fall by 980,000 barrels per day in 2009 to 84.7 million, the agency said in its monthly market report. The IEA's forecast last month was for demand to contract by 500,000 barrels per day this year.
The forecast adds to evidence that the financial crisis is sharply eroding fuel use. The IEA, which advises 28 industrialized countries, said the latest reduction to demand may not be the last.
"The bottom line is that 2009 looks like a pretty weak year," David Fyfe, head of the IEA's Oil Industry and Markets Division, told Reuters.
"It's far too early to say if this is the end of the downward demand revisions because the financial and economic spillover is still unfolding. We're hostage to any further weakening in the overall economy."
World oil demand is now expected to average 1.4 million bpd less than it did in 2007, before crude's price spike and the slowdown in the global economy started to cut demand.
The IEA said it was revising its oil demand forecast lower after the International Monetary Fund sharply cut its estimate for global GDP growth in 2009 to just 0.5%.
"The continued -- and dramatic -- revisions of the past few months underscore the extreme weakness of the global economy," the IEA said.
"The slowdown in industrial activity and consumption is the unavoidable sequel to the financial meltdown."
Oil prices pared gains after the IEA report was issued. U.S. crude was up 24 cents at $37.79 a barrel as of 6:17 a.m. ET.
The IEA also cautioned that future oil supply growth has come under threat from the collapse in prices, with decline rates in mature oilfields likely to accelerate if oil remains at $40 a barrel.
"Hand in hand with the downward revisions in demand is the impact on supply," said Fyfe at the IEA. "The trend now is that downside demand revisions are being matched on the supply side."
Oil prices peaked at $147.27 a barrel in July 2008 due in part to burgeoning demand from economies such as China and India, but have since collapsed due to the steep drop in demand.
As demand has fallen, oil inventories in the Organization for Economic Co-operation and Development (OECD) have remained at high levels.
Stocks at the end of December stood at 57 days of cover, compared with 56.4 days at the end of November, the IEA said. However, the IEA said that if the Organization of the Petroleum Exporting Countries (OPEC) is successful in implementing recent output cuts, supplies would be 1.5 million bpd day below its estimate of demand for the producer group's oil in 2009.
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