Dubai (Platts)--26May2009

Saudi Arabian oil minister Ali Naimi was quoted Tuesday as saying OPEC
would not increase its crude oil production ceiling until it was satisfied oil
inventories in consuming nations were back to normal levels, saying stocks
currently at 62 days of forward cover were high and should come down.

Speaking to the Saudi-owned newspaper al-Hayat in Rome, where he attended
a meeting of G8 energy ministers, Naimi also said that the kingdom considered
a price of $75-$80/barrel as appropriate to maintain energy investments.

Naimi's remarks echoed those of King Abdullah, who said in an interview
with a Kuwaiti newspaper that he still believed $75/b or "maybe $80/b" was a
fair price for oil.

Naimi told reporters in Rome at the weekend that he saw prices rising
toward $75/b eventually though he could not say when.

He told al-Hayat that the recent rise in oil prices -- oil futures prices
are currently trading at close to $60/b from previous levels around $50/b --
was due to "market psychology" and he could not predict whether prices would
again rise to last year's levels, when oil futures soared to a record
$147.27/barrel before falling sharply as the economic slowdown dampened oil
demand.

However, he said, a production increase by OPEC once demand recovers
"will not happen until we are satisfied that global stocks are down to normal
levels," Naimi said.

"Currently global stocks are at around 61 to 62 days of forward cover and
we want them down to a level of 52 to 54 days. Let us not forget that we are
referring to general stocks. There are stocks in the US, for example, that are
pressuring prices so we have to watch these things carefully."

"We want them [stocks] to come down. Although demand will pick up with
the onset of the third quarter, what is needed is a global economic recovery
and that is what we are looking for," he added.

Naimi also said that compliance with OPEC cuts totaling 4.2 million b/d
agreed by the group in stages last year was "somewhat better than last year
although when it comes to the arithmetic, there is some dispute over the
numbers."

Al-Hayat said in an introduction to its interview, not sourced to Naimi,
that OPEC was not expected to change its production ceiling when ministers
meet in Vienna on Thursday. Instead, ministers will concentrate on oil market
conditions, the global economy and stricter compliance with existing
production targets, it said.

It quoted Naimi as saying that oil price movements were linked to
fluctuations in the value of the US dollar, the main petroleum currency,
noting that oil prices move higher when the dollar weakens and lower when the
dollar is stronger "because oil market dealers take advantage of a weaker
dollar to speculate in commodities markets."

SPARE CAPACITY

However, Saudi Arabia would continue with its investments and capacity
expansion plans in order to maintain its goal of maintaining spare capacity at
a level of 1.5-2 million b/d in the future.

"As for oil, we have completed our investments and intend to maintain
them. Investments will not stop. When we reach a certain level of production,
we need to maintain it through continued investment."

Asked to comment on Saudi Arabia's spare capacity, which is expected to
reach 4.5 million b/d by the end of June when new increments are brought on
line, Naimi replied: "We expect demand to pick up in the next two to three
years and this spare capacity will come down..."

He added: "Saudi Arabia's strategy is built on securing stable supplies
and prices and this is a responsibility we have accepted by maintaining spare
capacity of between 1.5 and 2 million b/d."

Naimi was also quoted by the newspaper as saying that the kingdom, the
world's biggest oil exporter, would continue with its investments and capacity
expansion plans in order to maintain spare capacity at a level of 1.5-2
million b/d in the future.

"As for oil, we have completed our investments and intend to maintain
them. Investments will not stop. When we reach a certain level of production,
we need to maintain it through continued investment."

Saudi Arabia, with recoverable crude oil reserves of 259.9 billion
barrels, the world's largest, has brought on an additional 100,000 b/d
recently from the Nuayyim light crude oil field, Naimi told reporters in Rome.

It also expects to bring on an additional 1.2 million b/d from the
Khurais field in June.

With current production running at around 8 million b/d and production
capacity set to rise to 12.5 million b/d next month, the kingdom's spare
capacity will stand at 4.5 million b/d when Khurais starts up.
--Kate Dourian, kate_dourian@platts.com