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RIYADH – Saudi Arabia has increased its oil production by more than 700,000 barrels daily to more than 9 million bpd to compensate for disruption to Libyan output, an industry source familiar with the kingdom's production told Reuters on Friday, Reuters reported.

"We have started producing over 9 million barrels per day. We have a lot of production capacity," the source said.

The Saudi move comes after Riyadh made assurances earlier in the week that it was prepared to act to prevent shortages as a result of a rebellion in Libya against leader Muammar Gaddafi that has sharply reduced the fellow OPEC producer's 1.3 million bpd of exports.

The Organization of the Petroleum Exporting Countries has resisted calls for a formal increase in output and says it does not plan to meet until June.

Oil prices spiked close to $120 a barrel on Wednesday and traded at $112.50 on Thursday from $91.55 at the start of the year.

A report out of Washington by industry publication Energy Intelligence late on Thursday said Saudi Arabia had made the change quietly to bypass OPEC politics.

"The Saudi move has not been announced publicly, most likely because of the political sensitivities in the region and the internal dynamics of OPEC," Energy Intelligence wrote.

Saudi, which has around 4 million bpd of spare capacity, has publicly stated it will provide customers with all the oil they need to compensate for supply disruption from Libya.

The International Energy Agency, which represents consumer countries, has said between 500,000 bpd and 750,000 bpd of Libyan crude, less than 1 percent of global daily consumption, had been removed "at present" from the market.

Even before the latest price surge, oil prices had been climbing steady, prompting members of OPEC to lift output.