The impacts of newly imposed EU and U.S. sanctions on supplies and exports of Iranian oil are not easily extricated from the effects of sanctions enacted in previous years, the more general decline in Iran's production capacity, and other oil market developments. Undoubtedly, the EU embargo eliminates a significant market for Iranian oil. U.S. financial sanctions and EU insurance provisions have also impeded other countries' transactions for Iranian oil, leading to reports that Iran's ability to produce oil has outstripped its ability to sell it. Until recently, Iran could react to lower demand for its oil by adjusting the amount of oil it uses domestically or holds in onshore and offshore storage, in order to temporarily maintain relatively normal, albeit declining, levels of production. However, EIA estimates that Iranian production fell faster than the prevailing trend in June as unsold or undelivered Iran cargoes tested the limits of available storage capacity and some combination of production shut-ins, greater-than-anticipated declines in production capacity, or overdue maintenance occurred. EIA bases this assessment on preliminary commercial data on tanker liftings from Iran, press reports, official Iranian statements, and other relevant information. However, this tentative interpretation of a very fluid situation could change as data are revised, independent estimates of Iranian production are issued, and more details about Iranian storage levels, refinery utilization, and domestic consumption emerge.
OPEC members serve as the swing producers in the world market because only OPEC producers possess surplus or spare oil production capacity, most of which is in Saudi Arabia. EIA projects that OPEC surplus production capacity will average 2.4 million bbl/d in 2012 and rise to an average 3.6 million bbl/d in 2013 (OPEC Surplus Crude Oil Production Capacity Chart). However, as discussed above, markets may be closely watching the composition of OPEC spare capacity, as well as its aggregate level, as the situation with respect to Iran evolves. Under plausible circumstances, the market may discount a portion of OPEC members' aggregate spare capacity.
OECD Petroleum Inventories
EIA estimates that OECD commercial oil inventories ended 2011 at 2.59 billion barrels, equivalent to 55.9 days of forward-cover (Days of Supply of OECD Commercial Stocks Chart). Projected OECD oil inventories increase to 2.63 billion barrels and 57.3 days of forward-cover by the end of 2012, which is among the highest end-of-year levels in the last decade, because of the decline in OECD consumption.