The International Energy Agency (IEA) has called a sharp drop in global oil demand “nothing short of remarkable”.

The Paris-based lobby says global demand has taken a hard hit, as oil prices on futures markets tumble.

“Eurozone economic growth is petering out, while US petrochemical usage fell alongside pronounced declines in Japanese power sector demand,” IEA’s monthly Oil Market Report says.

It found that the market is being flooded with high supply.

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

“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,” the report said.

At the same time, several large hedge funds are getting out of the oil game.

Long exposures in major oil futures markets have collapsed from record highs in July, with the price of Brent futures now sitting below $US100 per barrel, down from over $US115 per barrel in June.

West Texas Intermediate crude is trading at around $US91 per barrel.

The IEA now says it expects a decrease in demand of about 65,000 barrels a day, compared with last month's forecast.

The forecast f or total oil deliveries will average around 93.8 million barrels per day in 2015, IEA predicts - this figure is approximately 165,000 barrels per day below the previous projection.

“Eurozone economies, already struggling with stagnation (ie weak to falling economic growth coupled with high unemployment), are getting perilously close to deflation,” the new report argues.

“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.”