Oil thirst slows, supplies rise, but tension to remain high: IEA

High global oil prices and cuts in fuel subsidies in some countries will slow growth of oil demand this year, the IEA forecast on Tuesday, reporting also a surge in supply in May.

The IEA, the oil market watchdog for industrialised countries, also sent a strong message to reassure markets that it would release strategic oil stocks if supplies were disrupted by tension, or an eventual attack, over Iran's nuclear programme.

However, the price surge last week to about 140 dollars per barrel "is not just about geopolitical risks -- the supply situation remains tight," the IEA said, signalling it was uncertain about how supply and demand will play out in the next six months.

Overall, market conditions "may ease" in the next few months but were "unlikely" to mark the end of current market tensions because underlying high prices "are largely explained by fundamentals," the IEA said.

High oil prices were changing consumer behaviour in countries in the Organisation for Economic Cooperation and Development "but they will take time to filter through".

Already airlines were cutting flights and consumers were turning away from SUV vehicles to fuel-efficient cars and to public transportation.

Overall use of vehicles was falling and consumers were protesting, the IEA said, but also warned that "absolutely the worst response is to subsidise prices more, or in the case of the OECD, to cut taxes."

It said it hoped to have a clearer picture of short and medium-term trends when it published its medium-term oil market report early next month.

Commenting on a record surge of 10.75 dollars in the oil price on Friday, the International Energy Agency noted in its monthly report that this followed comments by an Israeli minister that an attack on Iran was "inevitable" if Iran continued its nuclear enrichment programme.

Acknowledging that the price leap on Friday had been driven partly by speculators, the International Energy Agency said that the sudden rise was more a reflection of "risk management rather than speculation".

And commenting on possible threats to supplies because of tension over Iran, it said: "There is also another supply response to consider: an IEA strategic stock release.

"Given that OPEC countries are running close to flat out (supply), the market can take comfort that the IEA is watching developments very closely and is prepared to act quickly if necessary."