In the third quarter of 2012, world demand will reach its seasonal peak, reflecting both the U.S. driving season and increased oil use for electricity generation in the Middle East. Projected consumption exceeds production by 0.9 million bbl/d, leading to global stock draws. Given overall lower demand expectations, the impact of seasonality on the tightness of global oil markets is expected to be less than in 2010 or 2011, when third-quarter consumption outpaced production by 1.1 million bbl/d and 1.7 million bbl/d, respectively.
EIA expects that OPEC members will continue to produce more than 30 million bbl/d of crude oil over the next two years to accommodate the projected increase in world oil consumption and to counterbalance supply disruptions. Projected OPEC crude oil production increases by about 0.9 million bbl/d in 2012 and then remains flat in 2013 as non-OPEC supply growth increases and stocks rise slightly. OPEC non-crude oil liquids (condensates, natural gas liquids, and gas-to-liquids), which are not covered by OPEC's production quotas, averaged 5.3 million bbl/d in 2011 and are forecast to increase by 0.3 million bbl/d in 2012 and by 0.2 million bbl/d in 2013.
EIA expects Iran's crude oil production to fall by about 1 million bbl/d by the end of 2012 relative to an estimated output level of 3.6 million bbl/d at the end of 2011, and by an additional 200 thousand bbl/d in 2013. Iran's output decline has continued to accelerate since the fourth quarter of 2011. EIA believes that this acceleration reflects erosion in Iran's crude oil production capacity due to the country's inability to carry out investment projects that are necessary to offset the natural decline in production from existing wells, as well as the impact of lower Iranian crude oil exports due to recently enforced EU and U.S. sanctions. A number of foreign companies that were investing in Iran's upstream have halted their activities as a result of previous U.S. sanctions, which have been compounded by tighter measures enforced since the start of this year that have made it increasingly difficult to do business with the country. EIA expects that the forecast decline in Iran's output will be offset by increased production from other OPEC member countries.
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. EIA estimates that Iranian production continued to fall in July as production capacity continues to be affected by country's inability to carry out investment projects that are necessary to offset the natural decline in production from existing wells, as well as the impact of lower Iranian crude oil exports and possibly production shut-ins. 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.