Iran's oil production could fall almost 15 percent this year due to reduced foreign investment, the U.S. Energy Information Administration (EIA) said on Tuesday in a report highlighting the growing strain on Tehran's oil sector even before factoring in the effect of new sanctions.
The EIA estimated Iran's oil output would fall about 500,000 barrels per day by the end of 2012, declining from 3.55 million bpd at the end of last year, as many foreign companies have been forced out of the country by existing restrictions.
"Iran's decline in output began to accelerate during the last quarter of 2011 and has continued. (The) EIA believes that the acceleration reflects a lack of investment, which is needed to offset natural production declines," the statistical arm of the U.S. Department of Energy said in its monthly Short Term Energy Outlook.
"A number of foreign companies that were investing in Iran's upstream have halted their activities as a result of previous sanctions against Iran."
The forecast did not include the potential impact of recent European Union and U.S. sanctions that take effect in July and June and are expected to curtail exports from the OPEC nation. The EIA said "it is too early to assess Iran's ability to place its supply elsewhere".
EIA figures show Iran's oil production has already fallen sharply from last year, averaging 3.42 million bpd in the first three months of 2012 compared with 3.7 million bpd in the same quarter last year.
Analysts at JPMorgan last week forecast Iran's crude oil sales could fall as much as 1 million bpd by July as Tehran's customers seek alternative supplies.
The United States has been leaning on countries to reduce their imports of Iranian crude as part of broad-based sanctions aimed at pressuring Tehran to curb its nuclear program, which the West suspects is a cover to develop atomic weapons but which Iran says is purely civilian.
Countries risk being cut off from the U.S. financial system unless they can show they have taken steps to reduce substantially their reliance on Iranian oil, though some traders and analysts have questioned Washington's willingness to target China and India, Iran's two largest oil customers.
So far, the United States has given waivers to Japan and 10 EU countries that have cut back on purchases.
MARKET LOOSENS DESPITE IRANIAN CUTS
Despite the loss of Iranian output, the EIA expects oil markets to loosen this year. It now forecasts global consumption will average 88.81 million bpd in 2012, compared with last month's projection for demand of 88.96 million bpd.
Total global production, including OPEC and non-OPEC producers, is expected to average 88.97 million bpd, up from forecasts of 88.71 million bpd in March.
The EIA raised its forecast of 2012 non-OPEC output growth by 150,000 barrels per day to 840,000 bpd, while lowering its forecast for global demand growth by 170,000 bpd to 890,000 bpd. Non-OPEC production is expected to average 52.67 million bpd in 2012, up from the March forecast of 52.46 million bpd.
The EIA said it anticipates other OPEC member countries, including Saudi Arabia, will increase production to help offset any shortfall created by the loss of Iranian supplies.
U.S. CONSUMPTION, PRODUCTION
The EIA said U.S. oil consumption fell 4.5 percent in the first quarter of 2012 from the same period last year, with gasoline and distillate fuel -- including diesel and heating oil -- accounting for much of the decline.
U.S. gasoline demand dipped 2.8 percent, or 240,000 bpd, in the first quarter. The warm winter slashed heating oil demand, lowering distillate consumption by 6.7 percent, or 260,000 bpd, over the first quarter of 2011.
The EIA said, however, that the rate of demand destruction would slow over the next nine months, with gasoline consumption expected to average about 40,000 bpd below 2011 levels over the next three quarters.
Total gasoline demand for 2012 is seen averaging 8.65 million bpd, while diesel and heating oil demand are seen averaging 4.15 million bpd and 4 million bpd respectively.
While demand is down, U.S. production continues to edge higher due to the shale or "tight" oil boom.
The EIA revised up its estimate for U.S. crude oil production in 2012 by 190,000 bpd from last month's report to 6.02 million bpd, the highest output since 1998.
Little relief is expected for U.S. consumers at the pump, however, despite lower demand and higher domestic production.
Retail gasoline prices in the United States are expected to peak at a national average of $4.01 a gallon in May, the EIA said, up from a forecast of $3.96 in last month's report, with the United States still reliant on imports for 43 percent of all the crude and oil products it will consume this year.
(Reporting by David Sheppard and Matthew Robinson in New York; Additional reporting Joshua Schneyer; Editing by Dale Hudson and Lisa Von Ahn)