World oil demand growth is softening at a remarkable pace as the European and Chinese economies falter, the West's energy watchdog said on Thursday, while supplies grow steadily, particularly from North America.

"The recent slowdown in demand growth is nothing short of remarkable," the International Energy Agency (IEA) said in its monthly report, revising down its oil demand growth projections for both 2014 and 2015.

"While festering conflicts in Iraq and Libya show no sign of abating, their effect on global oil market balances and prices remains muted amid weakening oil demand growth and plentiful supply," it added.

The IEA said demand growth in the second quarter of 2014 alone eased back to a near two-and-a-half year low.

For the whole of 2014, the IEA reduced its oil demand growth projection by 65,000 barrels per day (bpd) to 900,000 bpd while for 2015 it cut its estimate by 100,000 bpd to 1.2 million bpd.

"Euro zone economies, already struggling with stagnation, are getting perilously close to deflation. The risk being that falling European prices trigger a deflationary spiral that causes further reductions in economic activity, as market participants delay investment/purchasing decisions," it said.

China, the world's second largest oil consumer after the United States, is unlikely to see oil demand grow by much more than 2 per cent, the IEA said.

Brent crude fell to a 17-month low below $98 a barrel on Thursday, down for the sixth straight session as worries over ample supply and weak demand outweighed concerns that conflict in the Middle East could curb oil production.

North Sea crude oil hit a high above $115 in June as Islamist insurgents swept across northern Iraq, taking control of several oilfields, but prices have now fallen more than 15 per cent from their highs as supply from other countries has increased much faster than demand.

The IEA expects non-Opec supply to expand by 1.6 million bpd in 2014, and by another 1.3 million bpd in 2015 on the back of the shale oil boom in North America.

That means the world will need less Opec oil and the IEA said it lowered its estimate of demand for Opec crude and stocks for 2015 by 300,000 bpd to 29.6 million bpd versus August production of 30.31 million bpd.

After oil prices weakened, the oil market shifted into a structure known as contango when prompt prices are weaker than prices in future months.

That market structure usually encourages oil companies and traders to store oil in the hope to resell it at a profit in the future.

The IEA said oil stockbuilding was also positive for energy security as it was serving as a good cushion against any supply disruptions.  - Reuters