WASHINGTON: The world’s spare oil production capacity outside of Iran rose in last two months as petrol demand waned in the United States and oil use for power generation fell in the Middle East, the US government said in a bimonthly report.
In September and October, spare oil production capacity was 2 million barrels per day, the EIA said, up from 1.8m b/d in the previous two months, said the report, which is required by last year’s Iran sanctions law.
The slightly larger cushion gives room for the Obama administration to continue pressuring Tehran over its disputed nuclear programme through sanctions that target Iran’s oil revenues.
The sanctions require global importers to buy less Iranian crude or risk being cut off from the US financial system. Tehran has said its nuclear programme is strictly for civilian purposes.
The EIA report, obtained by Reuters ahead of its publication, included a steep downward revision in spare capacity in July and August from 2.4m b/d to 1.8m b/d due to upward revisions of output from Opecc members Saudi Arabia and the UAE.
Still, the cushion is relatively thin compared to previous years. “The current level of surplus capacity is quite modest by historical standards,” the EIA said, adding that it averaged 3.6m b/d from 2009 to 2011 and 2.7m b/d in September and October last year.
While demand fell, global production outside of Iran rose, the report said. Libya, Iraq and Saudi Arabia pumped more crude and the United States continued to draw more oil from its vast shale reserves. Saudi Arabia, which holds most of the world’s spare output capacity, pumped at 9.8m b/d over the last 60 days, up about 100,000 b/d from the previous two months, the EIA said.
The US and European sanctions have reduced Iran’s exports to around 860,000 b/d compared to 2.2m b/d in 2011, according to the Paris-based International Energy Agency. While Iran had “precipitous declines” in crude exports, the situation has eased in September and October as most of its customers found ways to insure shipments after the European Union banned reinsurance, the EIA said.
“Preliminary data show a very small increase in global imports of Iranian crude oil since July,” the report said, noting the assessment was based on early tanker data and press reports, and could be revised. The report comes ahead of key decisions faced by the Obama administration in December on whether to extend six-month “exceptions” or waivers to the sanctions to China, India, South Korea and other importers.
The sanctions law requires importers to make “significant” reductions to oil purchases, measured by volumes and price, to win an exception. But the law also allows the administration discretion to ensure cuts are not so great that they backfire, pushing oil prices high enough to benefit Iran and hurt allies.
A Reuters poll showed that supply risks and loose monetary policy are likely to support oil prices over the next year.
Reuters monthly survey of analysts forecasts North Sea Brent crude oil will average $108.80 per barrel in 2013, up $1.90 from Reuters’ last oil price poll in September. “Supply risks are likely to push oil prices higher and ultra-loose monetary policy by major central banks should also increase liquidity in commodity markets and boost demand,” said Carsten Fritsch, senior commodity analyst at Commerzbank.
Oil markets have been balanced this year between supply and demand-side worries, with slowing global economic growth holding back consumption but markets increasingly concerned over a possible loss of supply from the Middle East.
Investors worry that a military conflict between Iran and Israel could cut off supplies from the key oil producing region. “We believe supply worries driven by production/export disruptions due to geopolitics and/or operational issues have for the most part edged out fears over a more significant drop in demand and continue to pose upside risk to the market,” Deutsche Bank analysts said.
The injection of hundreds of billions of dollars into financial markets by the world’s central banks is also likely to boost commodity prices and oil, analysts say.
“Financial investors will seek refuge in real assets to protect themselves against loss of purchasing power and currency devaluation,” Fritsch said.
Four of the 29 analysts surveyed expected Brent to average $120 or higher next year. Only three analysts expected Brent to average less than $100 in 2013, and three of 20 analysts expected the same level for Brent in 2014.
Harry Tchilinguirian, head of commodity market strategy at BNP Paribas, said he saw the potential for a sharp rise in oil prices and forecast Brent averaging $120 in 2013.
US crude is seen averaging $98.5 in 2013 and $100.7 in 2014. Barclays had the highest Brent price forecast in the poll for 2013 and 2014, with $125 and $130, respectively. Raymond James had the lowest forecasts for 2013 at $80 while Capital Economics offered the lowest projection for 2014 at $85.
Meanwhile, oil prices were mixed yesterday. Brent North Sea crude for delivery in December gained 32 cents to $108.81 a barrel in late London trade. New York’s main contract, light sweet crude for December lost 24 cents to $85.81 a barrel.
Agencies
