Top oil exporter Saudi Arabia must reduce its reliance on crude sales revenues and develop its downstream industry to shield its economy from international market volatility, the kingdom's oil minister said on Tuesday.

"Oil, as we all know, is volatile in terms of prices and production rates," Ali Al-Naimi told a downstream oil industry conference in Saudi Arabia.

Al-Naimi pointed to a sharp drop in crude prices from over $147 per barrel in July 2008 to nearly $35 a barrel a few months later and an accompanying fall in Saudi output from 9.5 million to 8.0 million barrels per day.

"In light of such unpredictable fluctuations, it is not appropriate to depend on the production and export of oil as a basis for national income and sustainable economic development," he said.   

Al-Naimi said the kingdom produced many raw materials and petrochemicals but still did not invest enough in manufacturing finished products to generate jobs for Saudi youth.

"Raw, or half-manufactured materials are exported to the outside world then re-imported back into the Kingdom as finished products, thus depriving the country, the citizen and the national economy as a whole of a lot of important investment opportunities which have the potential to create new jobs," he said.

Development of the Saudi petrochemical sector is a vital part of the government's strategy to diversify the economy and reduce its dependence on crude export revenues, he said.

"Petrochemical industries have a major and important responsibility in this respect, to support and incentivize their related conversion industries," he said in Jubail, where Saudi Aramco is building a petrochemical complex with U.S.-based Dow Chemical.

Meanwhile, Saudi Arabia produced around 9.80 million barrels per day (bpd) of oil in February, down about 70,000 bpd from January, and plans to keep output steady at that level over the coming months, an industry source familiar with the matter told Reuters on Tuesday.

"Production in February was around 9.80 and it will stay in the same range over the coming few months," said the source. - Reuters