WASHINGTON (Reuters) -- Global oil and fuel supply exceeded demand by 500,000 barrels per day in the last two months even as Western sanctions have hit Iranian crude production, the US Energy Information Administration said in a report Friday.

The report, required every 60 days by the Iran sanctions law President Barack Obama signed in December, gave a mixed view of global oil markets that could lend support to moving forward with US sanctions without eliminating the possibility of release of the country's emergency oil stock piles to cool down high fuel prices.

"It provides that comfort level that they can continue toward implementation of the sanctions without fear that the market is poised to go crazy for them," said David Pumphrey, fellow at Center for Strategic and International Studies and former Energy Department official.

The US sanctions and a pending embargo on Iranian oil by the EU have already reduced the OPEC-member's oil output 400,000 barrels per day compared to a year ago, the report said.

"EIA believes that Iran's total liquids production capability has been declining due to its inability to carry out investment projects," necessary to offset natural oil well decline rates, it said.

The global supply excess occurred during a time of year when stocks typically build. The report pointed out several non-OPEC production outages deepened in the last two months compared to earlier in the year.

Canadian oil supply problems added to supply worries about ongoing disruptions from Sudan, South Sudan, Syria, and Yemen.