A sudden drop in the global demand for oil is "nothing short of remarkable" according to the International Energy Agency (IEA).

The Paris-based IEA says its global demand forecast has been "revised down sharply" in the past month as oil prices on futures markets continue to tumble.

"A pronounced slowdown in demand growth in the second quarter of 2014 and a weaker outlook for Europe and China underpin the downward revisions," the IEA found in its highly influential monthly Oil Market Report.

"Eurozone economic growth is petering out, while US petrochemical usage fell alongside pronounced declines in Japanese power sector demand."

Against the anaemic demand, supply has not softened.

"US production continues to surge, and OPEC output remains above the group's official 30 million barrels per day supply target," the report noted.

"Against this backdrop, it is not surprising that prices have been easing.

"Oil prices tumbled for a second consecutive month in August as rising exports from Libya and booming US production deepened the overhang in crude markets and overshadowed any lingering worries of potential output disruptions in Iraq, OPEC's second biggest producer."

Hedge funds bail out as prices fall

The abrupt change has hit speculators hard as large hedge funds reportedly slashed their long positions in major oil futures markets.

Long exposures collapsed from record highs in July as the turmoil in Iraq did not curb supply and push up prices as expected.

This week the price of Brent futures fell below $US100 per barrel for the first time in more than a year, while West Texas Intermediate crude is trading around $US91 per barrel.

Two key crude oil futures prices have slumped below $US100 a barrel. ( ICE, NYMEX )

Brent futures had been trading above $US115 per barrel in June, and last traded at $US97.80 per barrel.

The IEA, the OECD's key independent energy advisor, says it now expects oil demand to grow worldwide by 0.9 million barrels a day in 2014, a decrease of 65,000 barrels a day compared with last month's forecast.

It is an even sharper downward revision of 300,000 barrels a day forecast made in July.

The IEA has also significantly cut its 2015 global demand forecast in the past month.

Total oil deliveries are now forecast to average roughly 93.8 million barrels per day in 2015, approximately 165,000 barrels per day below the previous projection.

The IEA is particularly downbeat about Europe.

"Eurozone economies, already struggling with stagnation (ie. weak to falling economic growth coupled with high unemployment), are getting perilously close to deflation," it argued.

"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, which in turn curb production and overall economic output."