By Sarah McFarlane and Alison Sider 

Oil prices eased off 3 1/2 -year highs Wednesday on signs this year's rally is starting to choke off demand growth.

U.S. crude futures recently traded down 27 cents, or 0.38%, to $71.04 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell 23 cents, or 0.29%, to $78.20 a barrel on ICE Futures Europe.

In the closely monitored International Energy Agency monthly report, 2018 demand growth was revised to 1.4 million barrels a day from a previous 1.5 million barrels, a change attributed to higher oil prices. The report, published Wednesday, pegged 2018 oil demand at 99.2 million barrels a day.

"We warned about the negative impact that higher oil prices should have on product demand growth," said Olivier Jakob, managing director of Swiss-based consultancy Petromatrix.

Brent oil prices have risen around 17% this year, boosted by production cuts by major producers tightening supplies and increased geopolitical tensions.

Some said the IEA is too pessimistic about demand.

"We recognize the risk of higher prices curtailing demand, but given the strength of demand in [the first half of 2018], solid global economic demand growth and OPEC's estimated spare capacity available to keep the global market supplied, we anticipate stronger demand growth," Wells Fargo analyst Roger Read wrote in a research note.

And oil prices pared losses after the U.S. Energy Information Administration reported larger declines in oil inventories than expected, as U.S. crude exports soared. Crude oil stockpiles fell by 1.4 million barrels in the week ended May 11, compared with analysts' forecasts of a 400,000-barrel decline. Gasoline stockpiles fell by 3.8 million barrels, compared with expectations of a 1.2 million barrel drop.

"Overall a rather bullish report with the yearly and five-year average inventory deficits both rising," Kyle Cooper, a consultant at ION Energy, said.

The U.S. is the latest sign of a tightening global oil market. The IEA also said that commercial oil stockpiles in industrialized economies have fallen to their lowest levels in three years.

Investors continued to monitor developments with Iran, following the U.S. withdrawal from the 2015 international nuclear agreement, which had seen the easing of sanctions against Iran in return for curbs to their nuclear program.

Iran is the third-largest oil producer in the Organization of the Petroleum Exporting Countries, and in the past sanctions have curbed its exports by around 1 million barrels a day.

Members of OPEC have pledged to step in and ramp up production if needed. However, for now, it's "business as usual" as the cartel continues to adhere to its agreement to cut supplies, said Stephen Brennock, an analyst at brokerage PVM.

"Any boost in output would signal the death knell of the OPEC supply cut pact. Production curbs will therefore remain in place with OPEC's core leadership thus far uncompelled to fill any void left by missing Iranian barrels."

Gasoline futures rose 0.42% to $2.2141 a gallon. Diesel futures edged down 0.28% to $2.2428 a gallon.

Write to Sarah McFarlane at sarah.mcfarlane@wsj.com and Alison Sider at alison.sider@wsj.com

(END) Dow Jones Newswires

May 16, 2018 11:46 ET (15:46 GMT)