In its monthly oil market report, the IEA shaved its estimate for 2005 demand growth by 70,000 barrels a day to 1.38 million bpd on the 83.7 million bpd world market.

That would put growth in 2005 at 1.7%, down from 3.3% or 2.63 million bpd this year when China led the steepest increase in world oil demand since 1976. World growth in 2003 was 1.8 million bpd or 2.3%.

Fuel consumption has raced ahead of economic growth in China this year. Oil demand to cater for the expanding economy was supplemented by private electricity consumption, fuelled by diesel because non-oil capacity could not cope with demand.

"Barring any hard landing, we expect continued Chinese economic expansion to keep fuelling steep oil demand growth through 2005 and beyond," the IEA report said.

"But we anticipate this to be partially offset in the short to medium term by reduced diesel demand growth for standalone generators as non-oil power generating capacity is gradually catching up with power demand."

Rising world diesel consumption was one of the main factors behind this year's record-breaking increase in oil prices, Reuters said.

Competition for the low-sulphur crudes required to make diesel by refiners worldwide raised the premium for grades like benchmark North Sea Brent and US crude.

But Chinese demand growth in 2005 is forecast to cool to 360,000 bpd, 5.7%, down from this year's explosive 14.7% or 810,000 bpd, said the IEA.

The agency said extra Chinese diesel demand for power generation may have accounted for as much as 300,000 bpd of China's incremental demand in 2004.

The IEA report estimated Chinese third quarter oil consumption slowed as expected to 8.6% after gains of 19% and 25% in the first and second quarters of 2004.

China demand grew 11% or 550,000 bpd in 2003.

The IEA said this year's record high oil prices appeared to have little impact so far on world oil demand.

Published: 10 December 2004 12:29 GMT  | Last updated: 28 April 2005 09:35 GMT