Record oil prices are starting to hurt economic growth and curtail energy consumption, the International Energy Agency warned on Friday. The energy watchdog said oil consumption was now forecast to increase this year at less than half the pace of 2004. The IEA's warning came as oil companies faced mounting pressure in Europe to ease the economic pain of soaring fuel prices. France threatened a windfall tax on “exceptional” profits unless the sector cut petrol prices and increased investment in renewable energy.

The IEA cut its oil demand forecast for 2005 by 250,000 barrels a day, to 1.35m b/d, far more than had been expected. Much of the drop in demand happened before Hurricane Katrina drove oil prices beyond $70 a barrel.