MADRID, Spain - Oil supplies will remain tight despite record prices that have reduced demand, according to the International Energy Agency, and its executive director said Tuesday that the world is in the grip of its third "oil shock."

Downsizing its estimate of how much oil will reach the market, the IEA predicted supply will exceed projected demand only by 2 million barrels a day -- a thin cushion.

The IEA is the energy watchdog for the Organization for Economic Cooperation and Development, a grouping of the world's most industrialized countries.

In its annual Medium Term Report, it said the world's estimated daily oil needs would rise from 86.87 million barrels this year to 94.14 million barrels in 2013 -- less than it anticipated last year, because of skyrocketing prices. The agency said there will be 1.4 percent less demand this year and 3.43 percent less in 2012, the last year for which the report gave figures.

As Western nations cut back, China and other emerging economies will consume more crude, the IEA said.

"We are clearly in the third oil price shock," said IEA Executive Director Nobuo Tanaka.

The first oil crisis struck in 1973 when Arab states declared an oil embargo. The second began in 1979 following the Iranian Revolution.