The International Energy Agency (IEA) officially released its Medium-Term Oil Market Report today. The agency expects that the market will remain somewhat strapped in the years ahead, due to increased demand from developing countries and continuing supply constraints. According to the report, "Oil demand remains concentrated in developing economies, with 90% of the growth spread between Asia, South America and the Middle East." However, the IEA downwardly revised its 2008 global demand estimate by 1.4 million barrels per day to 86.87 million barrels, citing weak economic growth in the industrialized world, as well as record-high energy prices.

Overall, the agency expects a 1.4% drop in demand this year, and 3.43% less demand by 2012. Supply is expected to exceed projected demand by a rather thin margin of 2 million barrels per day.

The IEA report also dismissed the widespread theory that crude oil's rapid price increase is based on speculation. The report states, "While recognizing that speculation can have a day-to-day impact on price moves, the fact that all producers are working virtually flat out and that there is no sign of any abnormal stockbuild gives a strong indication that current oil prices are justified by fundamentals." Those fundamentals include "poor supply growth, low spare capacity, a weaker dollar, and a mismatch between refinery capacity and the structural growth in product demand."

Despite the slashed global demand outlook, crude-oil futures rose more than $2 in early trading to hit $142.12 per barrel, boosted by ongoing concerns about tensions between Iran and Israel.