The global oil market has not responded to output capacity increases by the kingdom and other producers, Saudi Arabia's King Abdullah has said.

He reiterated in comments published by Asharq al-Awsat newspaper that speculation was the main factor behind the surge of oil prices.

"Despite the implementation by the kingdom and a number of producing nations of production capacity increases, we did not feel a response from the global oil market," the monarch said.

This showed the price of oil was affected by factors other than supply and demand, he said. "The most important of which (factors) is speculation in the global oil market and the imposition by many consuming nations of additional taxes on oil," he said.

Opec officials have repeatedly blamed factors beyond their control such as speculation and the weak dollar for oil's rise.

He said Saudi Arabia wants to see lower oil  prices. "We did not want and do not want the price to be this high. It is not in our interest because it is not in the interest of the rest of the world."    

Saudi Arabia was pumping at 9.7 million barrels per day in July, the fastest rate for 27 years an increase of 550,000 bpd from two months ago.

"Listen to me. I am speaking for myself and for the Kingdom of Saudi Arabia. When the price of oil hovered around $100 a barrel, we were already unhappy. Imagine what we feel like now, when there is talk of $200," the Saudi ruler said.

Abdullah said that Saudi Arabia, like other producers and consumers, wanted to see stability in global oil markets. Cooperation between producers and consumers needed to be strengthened, he said.

While the G8 summit in Japan called for dialogue between producing and consuming countries, Saudi Arabia had already created the Riyadh-based World Energy Forum to promote that dialogue, he added. "We'd like the G8 to support existing initiatives instead of duplicating efforts with similar projects." 

Meanwhile, oil fell around $1 on Wednesday, after sliding more than $6 the previous session, the steepest in dollar terms in 17 years as demand fears swelled on worsening prospects for the US economy.

US crude was 10 cents lower at $138.64 a barrel by 0659 GMT, after briefly dropping by more than $1 to $137.22 a barrel. But oil remained off a low of $135.92 overnight and after the biggest one-day drop since 1991, when prices tumbled at the start of Operation Desert Storm.

London Brent crude fell 21 cents to $138.54 a barrel, after earlier hitting $137.70.

'I think what happened yesterday, especially with the dollar weakening, suggests that the market is taking a little more focus on the real fundamentals,' said Mark Pervan, head of commodity research at ANZ.

US Federal Reserve Chairman Ben Bernanke said the weak housing market and high energy and food prices were putting additional stress on a US economy already under considerable strain from the credit crisis fallout.

The US dollar fell to a record low against the euro on Tuesday before recovering some ground. Investors have been pumping cash into oil and other commodities this year looking for a safe bet against inflation and a sliding dollar, pushing crude up nearly 50 percent to a record above $147 a barrel earlier this month.

Oil's six-year rally has been kept on the boil by ballooning demand from developing economies such as China and India. But consumers in large economies like the United States, already feeling the pinch of the credit crunch and housing crisis, have begun to scale back on energy use, with retail gasoline demand down more than 5 percent last week from a year ago, according to MasterCard Advisors.

'The market is coming to the realisation that OECD demand is going to start contracting, even Opec has trimmed demand growth,' Pervan said. - Reuters