Nuayyim is one of three oilfield projects due for completion by the end of June to take Saudi total production capacity to 12.5 million barrels per day.

The project was close to full completion, with potential to pump nearly 100,000 bpd, the source said.

State oil company Saudi Aramco was ramping up production slowly, he added, declining to estimate output.

"Nuayyim started this week," the source told Reuters.

"You start slowly, like with a new car, you don't go fast all of a sudden."

The two other projects were on schedule for completion before the end of June, he added.

The largest of the three projects is the giant 1.2 million bpd Khurais oilfield, which Aramco says is the biggest ever single increment to global production.

The third project is the 250,000 bpd Shaybah expansion, which would take capacity at that oilfield to 750,000 bpd.

Nuayyim pumps Arab Extra Light crude, which is prized by refiners for the ease with which it can be transformed into transport fuels.

Initial production was delayed from the original schedule of December 2008, in part due to glitches in supplies of equipment for a plant to separate gas from oil.

When the three projects were all online, the kingdom would have spare capacity of around 4.5 million bpd.

After cuts to match supply with falling global demand since last summer, Saudi output stands at just under 8 million bpd.

The kingdom has over a fifth of all the world's oil reserves but has no further plans to expand output capacity.

Spare capacity in June would grow to more than twice the 1.5 million to 2 million bpd cushion it likes to keep to meet any unexpected global production outages.

With so much spare capacity, Saudi Arabia is in no rush to develop more.

The kingdom has outlined how it could take capacity to 15 million bpd when demand warrants further growth.

Published: 20 May 2009 13:04 GMT  | Last updated: 22 May 2009 10:24 GMT