Crude prices well over $100 a barrel are starting to take a bite out of global oil use, the US government's energy forecasting agency said on Tuesday as it cut its outlook for this year by the most in 10 months.

The Energy Information Agency's 120,000 barrel per day (bpd) reduction in its 2011 demand growth forecast is the latest sign that analysts are factoring in less fuel use as a result of gasoline and jet fuel prices that are drawing near their 2008 peaks. Opec and the Paris-based Energy Information Administration will release their reports later this week.

More than half of the cut is due to lower than expected fuel use in the US, where 2011 oil demand will grow by only 130,000 bpd, it said its Short-Term Energy Outlook. A month ago the agency had predicted 210,000 bpd of growth.

Global oil use is now expected to average 88.08 million bpd, down from the agency's previous month's estimate of 88.20 million bpd. Demand growth in 2012 will be 40,000 bpd higher, hitting 19.5 million bpd. That is still far from the record high of 20.8 million bpd set in 2005.

Declines in demand among industrialized countries will be led by Europe and Japan, while the United States and Canada will continue to see growth.

Developing countries, however, will make up most of the growth in oil demand over the next two years, with the biggest increases coming from China, Brazil and the Middle East.

For 2012, world oil demand will grow by 1.58 million bpd but total oil demand next year will be 100,000 bpd lower than  previously forecast to an average 89.66 million bpd.

Oil prices dropped sharply last week and the US agency trimmed back its forecast for crude prices. US crude is seen averaging $103 a barrel this year, down $4 from the previous forecast, and rise to $107 in 2012, down $6.

On the supply side, more oil is expected to come from non-Opec countries, with production revised up 170,00 bpd for 2011 and 360,000 bpd higher for next year.

Opec crude oil production is forecast to fall by 450,000 bpd this year and then increase by 640,000 bpd in 2012.

"EIA still expects oil markets to tighten through 2012 given projected world oil demand growth and slowing growth in supply from countries that are not members of the Opec," the agency said.

Slightly lower oil prices will save US drivers money at the pump in the months ahead.

The average price for gasoline this summer is forecast to be $3.81 a gallon, up from $2.76 last summer, but 5 cents less than EIA estimated last month.

The agency said there is a four in 10 chance that monthly gasoline prices will peak above $4 a gallon in July. – Reuters