Naimi says Saudi oil strategy working, sees stronger demand

By Rania El Gamal and Alex Lawler

VIENNA (Reuters) - Saudi Arabia's oil minister Ali al-Naimi said on Monday he expects oil demand to pick up in the second half of 2015 while supply decreases, in a sign that the kingdom's strategy of defending market share was working.

The comment indicates Saudi Arabia will likely propose not to change output policy at producer group OPEC's meeting on Friday, although Naimi declined to speak directly on the issue.

"The answer is yes," Naimi said in his first public comment upon arrival in Vienna, where the meeting will take place, when asked whether the strategy of defending market share through higher supplies and lower oil prices was working.

"Demand is picking up. Good! Supply is slowing, right? That is a fact," he told reporters. "You can see that I'm not stressed, I'm happy," he said.

Naimi was the key architect of OPEC's decision at its last meeting in November 2014 not to cut crude production despite a growing global glut, exacerbated by a boom in U.S. shale oil.

Instead, OPEC kingpin Saudi Arabia raised production to win back market share and depress the output of higher-cost producers through lower oil prices, which fell from as much as $115 in June 2014 to as low as $46 in January 2015.

However, prices have recovered in recent weeks to $60-$65 per barrel on the possibility of a major slowdown in U.S. oil output and signs of stronger global demand.

Naimi said it would take time for the oil markets - still heavily oversupplied - to rebalance. "I don't have a crystal ball but it is (going) in the right direction," he said.

He added he was not concerned by prospects of an increase in Iraqi or Iranian supplies later in the year.

He said he doubted that millions of barrels of oil stored in recent months by traders and oil companies would be offered anew in the market, thus leading to a fresh drop in prices.

He said one reason why that would not happen was the narrowing contango - a market structure in which future prices are higher than current prices, encouraging the storage of oil for resale at a profit in the future. The opposite structure, backwardation, has current prices higher than future prices.

"This is not a good time to sell the surplus. So they (traders) have to keep it and as the contango goes down and they see the backwardation coming forward they will hang on to it. They are not going to dump it on the market," Naimi said.

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(Additional reporting by Reem Shamseddine, writing by Dmitry Zhdannikov, editing by Dale Hudson)