WASHINGTON (Reuters) – World oil inventories have risen over the past two months, aided by increased output from Iraq and Libya, but spare production capacity remains tight, the U.S. government said on Tuesday.
Global fuels output exceeded consumption by an average of 1 million barrels per day in May and June, helping to push oil inventories higher and prices lower, the Energy Information Administration said in a report, obtained by Reuters ahead of its publication.
The EIA report is required every 60 days under the Iran sanctions law signed by President Barack Obama late last year that called for restricting Iran’s ability to sell its crude oil on world markets.
The EIA estimated that world spare production capacity grew in the last two months to 2.4 million bpd, up from 2.1 million bpd in the previous two months.
The EIA warned, however, that spare world oil capacity was less than 3 percent of total world consumption, making it a factor as U.S. imposes sanctions and the European Union embargoes Iranian oil shipments from July 1.
“Spare capacity in May and June is still quite modest by historical standards, especially when measured as a percentage of global oil production and consumption,” the EIA said.
With only a thin spare oil supply cushion, unforeseen oil production outages, such as major damage to oil platforms from hurricanes in the Gulf of Mexico or an upsurge of violence in producers such as Nigeria can quickly boost oil prices.
Global liquid fuel output in May and June hit 88.9 million bpd, up about 2.9 million bpd from the same period last year, the EIA said. Most of the gain came from increased output from Organization of the Petroleum Exporting Countries members Iraq and Libya. Output has also grown from Saudi Arabia.
The figures showing better supplies and falling oil prices cheered supporters of U.S. sanctions on Iranian oil transactions that get underway on June 28.
“This is great news for sanctions supporters and very bad news for the Iranian economy,” said a Senate Republican aide.
“With oil prices down and markets getting looser, the President and Congress have maximum flexibility to push the envelop with regard to economic sanctions. It’s only going to get worse for Tehran from here.”
Output in Iraq hit 2.9 million bpd in May and June, the highest since 2000, as new infrastructure helped increase exports from its southern fields. Libya’s production which had virtually ceased for much of last year, has been restored to between 80 and 90 percent of the level it was before the civil war.
World fuel consumption averaged 87.9 million bpd over the last two months, up 600,000 bpd from the same period last year, the report said. (Reporting by Timothy Gardner and Roberta Rampton; Editing by Marguerita Choy)