By Michael Peel in Riyadh and Javier Blas in London

Saudi Arabia has halted the $100bn expansion of its maximum oil production capacity after reaching a target of 12m barrels a day as the kingdom believes that new oil sources, from Iraq and elsewhere, will meet rising demand.

Khalid al-Falih, chief executive of state-owned Saudi Aramco, said on Monday that pressure on Riyadh to raise its output capacity had ?substantially reduced?, the clearest indication yet that the world?s top oil producer is not pushing ahead with an assumed expansion plan to 15m b/d by the end of 2020.

The comments put a cap at least temporarily on a $100bn expansion programme that started in the early 2000s when Saudi was able to produce about 8.5m b/d. The halt comes in spite of tightness in the market due to production disruptions in Libya, Syria and Yemen.

Oil prices reached a two-year high of more than $125 a barrel earlier this year after the civil war broke in Libya but since then the cost of Brent, the global benchmark, has fallen back to $105 a barrel due to the impact of the financial crisis.

The oil market closely watches Saudi Arabia?s expansion programme because the country holds most of the global spare production capacity that acts as a cushion in case of a production disruption. Riyadh boosted its oil output to 10m b/d earlier this year, the highest in 30 years, to compensate for the loss of production in Libya.

?There was pressure on the kingdom and Saudi Aramco to raise production [capacity]. That pressure, I think, has been substantially reduced,? Mr Al-Falih said, adding that the debate on energy policy had been ?turned upside down? recently by growing oil and natural gas supplies.

The International Energy Agency has over the last decade steadily cut its projection for Saudi oil production. Earlier this month, the watchdog said on its flagship World Energy Outlook that the kingdom would need to produce 12.6m b/d by 2030, compared with an estimate for the same year of 18m b/d published in 2005.

? The Financial Times Limited 2011