Saudi oil minister says market oversupplied and cuts output

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Saudi Arabia »

By Amena Bakr and Reem Shamseddine

KUWAIT | Sun Apr 17, 2011 12:30pm EDT

(Reuters) - Saudi Arabia's Oil Minister Ali al-Naimi said on Sunday the world oil market was oversupplied and that the world's top oil exporter had already reduced production due to weak demand.

Consumers have urged OPEC to quickly add supply to quell the rally that has taken oil to its highest level in two and a half years amid unrest in North Africa and the Middle East.

"The market is overbalanced... Our production in February was 9.125 million barrels per day (bpd), in March it was 8.292 million bpd. In April we don't know yet, probably a little higher than March. The reason I gave you these numbers is to show you that the market is oversupplied," Naimi told reporters.

Two Saudi-based industry sources told Reuters last week the kingdom had cut production by 500,000 barrels per day (bpd) in response to weak demand.

OPEC officials have strongly rejected responsibility for high oil prices in recent weeks but Naimi's words are the clearest indication yet that the group is unconvinced there is a need for more oil and that OPEC may well leave its policies unchanged at its June meeting.

The United Arab Emirates on Sunday quoted Oil Minister Mohammed bin Dhaen al Hamli as saying the market was well supplied and that the oil price was not reflecting market fundamentals.

"Why should OPEC increase production in June? There is no need, the market is oversupplied and the price is not high because there is a lack of supply," a Gulf OPEC delegate said on Sunday.

NO COMMENT ON PRICE

The International Energy Agency, which represents industrialized nations, warned last week high oil prices were starting to hurt economic growth.

Naimi declined to comment on the current price of crude.

Oil fell early last week after Goldman Sachs warned high oil prices may be eroding demand but rebounded on signs of renewed health in the U.S. economy on Friday.

Saudi Arabia and some other OPEC members unilaterally boosted oil production after the uprising in Libya shut down the bulk of the North African OPEC member's oil industry.

Naimi confirmed Saudi Arabia had sold 2 million barrels of its so-called special blend that state oil company Saudi Aramco produced as a substitute for Libyan crude oil that was lost to the market due to the Libyan unrest but market sources say demand for the blend has been muted.

A Reuters survey estimated Saudi Arabia produced 9 million bpd in March, up from 8.65 million bpd in February.

(Reporting by Amena Bakr and Reem Shamseddine; Writing by Robert Campbell; Editing by Mike Nesbit)