Saudi oil officials are considering when to start expanding their country’s long-term production capacity to stay ahead of the surging global demand for crude, executives at the state-run Saudi oil company said Thursday.

As crude prices fluctuate around $40 US a barrel, the officials are weighing options to increase Saudi Arabia’s capacity above its current level of 10.5 million barrels a day. The options include boosting output at the kingdom’s existing oilfields and producing from as many as four new ones, the executives said.

Saudi Arabia is the world’s only oil supplier with significant spare capacity to produce more, and the Saudis’ key concern is to keep enough untapped wells in reserve to provide them – and the world – with a cushion of at least 1.5 million barrels in potential output.

“That’s where the whole debate is now,” said Nansen Saleri, the head of reservoir management at Saudi Arabian Oil Co., known as Saudi Aramco.

The Saudis were assessing their strategy as OPEC oil ministers prepared to meet June 3 in Beirut to seek agreement on how best to ease market fears about possible disruptions in oil supplies and a further rise in prices. The Organization of Petroleum Exporting Countries pumps more than one-third of the world’s crude, and Saudi Arabia is the group’s most powerful member.

OPEC had mistakenly expected demand to fall this spring, and it agreed at the end of March to cut its daily production target by one million barrels to 23.5 million barrels. However, a strong U.S. economic recovery and rising demand from China caught the group by surprise, and prices have soared to levels not seen since before the first Gulf War.

Saudi Oil Minister Ali Naimi has since proposed raising OPEC’s production ceiling three times in rapid succession, most recently by as much as 2.5 million barrels, or 10.6 per cent. But the proposals did little to slow the advance in crude prices, and some analysts questioned OPEC’s competence as a stabilizing influence in energy markets.

“It’s descending into farce now,” said Leo Drollas of the London-based Center for Global Energy Studies.

OPEC president Purnomo Yusgiantoro said the group would consider three strategies for trying to cool prices when its 11 members meet in Beirut. It could send a reassuring signal by increasing its output target to formalize all 2.3 million barrels it now pumps above its ceiling. OPEC could send a slightly stronger message by lifting its ceiling even higher than its current level of overproduction, Purnomo said in Jakarta, Indonesia.

But neither of these options is likely to push oil prices much lower, he said, adding that OPEC might decide instead to make a major increase in its actual production and not just its output target.

Paul Horsnell of Barclays Capital in London argued that an increase in OPEC’s ceiling is less important than what Saudi Arabia itself produces.

Naimi tried over the weekend to reassure importers and markets that Saudi Arabia would pump all the oil it could, if a permanent rise in demand justified the additional production.

“Right now it looks like the demand is there, that the demand is firm, and that’s why there’s a serious look over the next few years as to whether there’s a need for an increase in the maximum sustainable capacity,” said Saleri, speaking from his home in Dhahran, Saudi Arabia.

Saudi Aramco plans this fall to start pumping 500,000 barrels a day at a new oilfield, Qatif, and to double the existing 150,000-barrel output at another field, Abu-Safah. Together the two fields will contribute 650,000 barrels to its daily output once they come on stream in late August or September, Saleri said.

However, Saudi Aramco aims to use Qatif and Abu-Safah to offset declining output from its older fields. For now, at least, the two new fields won’t increase the kingdom’s production capacity, said Abd Allah Al-Saif, the company’s senior vice-president for exploration and production.

At the same time, Saudi Aramco is continuously assessing its optimum capacity.

“Whenever we see a need to change it, we will change,” Al-Saif said from Dhahran.

Saudi Arabia is often described as the world’s central bank for oil, though some analysts have questioned the size and longevity of its crude reserves. The Saudi Oil Ministry has pledged to pump 9.1 million barrels a day in June – over 10 per cent of the global supply. Saudi Aramco claims it could ratchet up its long-term production to 15 million barrels, if necessary.

In the short-term, Saleri said the company could raise its capacity by 500,000 barrels within six months and 1.5 million barrels within three years.

“If the company takes the view that we will go to much higher rates of production, we will most probably bring on new fields.”

The two untapped fields of Khuraif and Manifa could “comfortably” add two million to three million barrels a day, he said.

Crude prices tumbled Thursday due partly to comments from U.S. Energy Secretary Spencer Abraham that non-OPEC members Russia and Mexico have indicated they could pump more oil than normal.

Contracts of light U.S. crude for July delivery fell to $39 US a barrel in New York before rebounding somewhat to $39.75, down 95 cents from Wednesday’s close. In London, July contracts of Brent crude were trading 44 cents lower at $36.64 US.