Worries of a supply disruption from the Middle East due to escalating tensions between the West and Iran over Tehran's disputed nuclear program pushed Brent prices 20 percent higher since the start of the year to a record of over $128 in March.

Prices have since eased but the more expensive crude has threatened to derail the fragile global economic recovery and strained the budgets of emerging economies. This has prompted influential Saudi Arabia, a key ally of the United States, to repeatedly stress that oil markets were well supplied.

Despite the recent declines, Naimi told reporters during a trip to Japan that oil prices are still high. Asked if producer group OPEC needs to raise output quotas in a policy meeting on June 14, he said: "You have to wait for the meeting. We have to discuss that."

At 10 million bpd, Saudi Arabia's output is the same as last month, which was the most since November when it produced more than it had done for decades.

The kingdom stood ready to tap into its spare capacity of 2.5 million barrels per day if more crude was needed, he added.

"In addition to our spare capacity of 2.5 million barrels per day, we have on the ground, in tanks and in pipelines about 80 million barrels of inventory, these are working inventory," Naimi said.

Saudi Arabia had storage capacity of about 80 million barrels, which is full, and is ready to meet any sudden need for an increase in supply, he added.

Iran's oil exports have been reduced by Western sanctions aimed at forcing Tehran to halt its nuclear programme.

China, South Korea, Japan and India, the main buyers of Iran's 2.2 million bpd of exports, have all made cuts in purchases this year and rising supplies from Saudi Arabia, Libya, Russia and other Middle Eastern exporters are helping ensure there is ample crude available.

JAPAN SEEKS STABLE SUPPLY

Speaking to reporters before meeting Naimi, Japan's trade minister, Yukio Edano, said he would ask Saudi Arabia to help secure stable oil supplies.

"In general, Saudi Arabia has provided the greatest cooperation over many years in regards to a stable crude oil supply. I want to thank them for that and ask for continued cooperation," Edano said.

Japan's crude imports from Iran fell 36.4 percent in March from a year earlier, while overall oil consumption has risen to meet power demand with nuclear generators switched off.

The north Asian nation imported 305,114 bpd of crude from the Islamic Republic in the first quarter, down 31.2 percent from 2011, when it purchased 443,535 bpd, the data showed.

(Reporting by Osamu Tsukimori; Writing by Simon Webb, Manash Goswami; Editing by Himani Sarkar)

• A Permanent Economic Emergency