The exporter group also cut its estimate for oil supply from non-member countries in 2008, leading to a slight increase in the amount of crude its 13 members need to pump to balance the market.

World oil demand will rise by 1.16 million barrels per day (bpd) this year led by Asia, the Middle East and Latin America, 40,000 bpd less than the previous forecast, OPEC said in its Monthly Oil Market Report for May.

The report by OPEC's economists underlines the group's view that factors beyond oil supply and demand are driving oil prices to all-time highs. Crude oil hit a record high of $126.98 a barrel on Tuesday.

"Oil demand growth is expected to experience the typical seasonal low consumption in the second quarter," the report said.

"This year's summer driving season is not likely to show its normal annual growth due to the anticipated weaker gasoline demand in the U.S."

Gasoline use usually rises in the summer due to demand from vacationing motorists in the United States, but the slowing economy and record pump prices are expected to weigh on demand this year.

Oil's climb has brought more calls from industrialized countries, such as the United States, for OPEC to increase oil output.

But the Organization of the Petroleum Exporting Countries says factors like the weakness of the U.S. dollar, speculative trading and political tension are lifting prices, not a lack of oil.

OPEC's report dusted off another factor it has frequently cited for oil's rally, limited capacity at refineries and its impact on the crude market.

The rising premium of higher-quality crudes to lower-quality grades reflected a shortage of refineries able to make light products, such as gasoline, from lower-quality crude, OPEC said.

 Less than IEA

OPEC, source of two in every five barrels of oil, is the latest forecaster to trim its projection for world oil demand this year because of the slowing world economy and high prices.

But OPEC's adjustment is much smaller than that of the International Energy Agency, which earlier this week cut its demand growth forecast by 230,000 bpd and said it may lower the figure further.

Strong consumption in places such as China and the Middle East is expected to offset weak demand in members of the Organization for Economic Co-operation and Development.

OPEC cut its estimate for supply from non-member countries in 2008, meaning the group needs -- at least on paper -- to pump slightly more oil to balance the market.

It expects non-OPEC supply to average 50.18 million bpd this year, about 100,000 bpd less than previously forecast in part due to lower output estimates from Russia, Mexico and Norway.

Demand for OPEC oil is seen averaging 31.84 million bpd in 2008, up 90,000 bpd from last month's estimate and more than current output.

OPEC next meets on Sept. 9 at its Vienna headquarters to review supply policy.