June 19 (Bloomberg) -- Crude oil fell more than $4 a barrel, the biggest drop in 11 weeks, on speculation demand will decline, after China said it will raise fuel prices starting tomorrow.

China, the second-biggest fuel consumer after the U.S., will increase gasoline and diesel prices by as much as 18 percent, the National Development and Reform Commission said. Saudi Arabian King Abdullah has called for a meeting between oil producers and consumers on June 22 in Jeddah.

``The Chinese have made their contribution to King Abdullah's meeting this weekend,'' said Adam Sieminski, Deutsche Bank's chief energy economist, in Washington. ``All of the major players are going to pitch in.''

Crude oil for July delivery fell $4.75, or 3.5 percent, to settle at $131.93 a barrel at 2:50 p.m. on the New York Mercantile Exchange, the biggest drop since March 31. Futures climbed to a record $139.89 on June 16. Prices are 91 percent higher than a year ago.

Brent crude oil for August settlement declined $4.44, or 3.3 percent, to settle at $132 a barrel on London's ICE Futures Europe exchange. Prices climbed to a record $139.32 on June 16.

Saudi Arabia plans to increase crude-oil production by 200,000 barrels a day, according to a statement from the kingdom's embassy in London.

The statement didn't specify the timing of the increase. Oil Minister Ali Al-Naimi pledged on May 16 to boost output by 300,000 barrels a day in June. The country has since indicated it plans to announce a further addition at the Jeddah meeting.

China Prices

China will raise jet-fuel prices by 1,500 yuan a ton, or 25 percent, tomorrow, the top policy planner said. On July 1, China will increase electricity prices by an average 0.025 yuan a kilowatt-hour, or 4.7 percent. China will impose temporary caps on thermo-coal prices until the end of this year.

The government is considering a so-called environmental tax, a new levy on auto fuels and changes to existing taxes on natural-resource use, Fu Jing, deputy director of policy and legislation at the State Administration of Taxation, said at the Energy Efficiency Asia conference in Beijing today.

``The developing countries, in particular China, have been driving demand growth,'' said Eric Wittenauer, an analyst at Wachovia Securities in St. Louis. ``Subsidies and price caps insulate consumers from the full impact of higher prices. By rolling them back, some of the insulation is reduced and we can expect to see a demand response.''

Oil demand will fall 240,000 barrels to 48.71 million barrels a day among the 30-member Organization for Economic Cooperation and Development, the U.S. Energy Department said in a report on June 10. The OECD doesn't include developing countries such as China.

Rising Consumption

Chinese consumption is expected to rise 440,000 barrels to an average 8.02 million barrels a day this year, according to the report.

India, Malaysia, Indonesia and Taiwan have increased fuel prices and reduced subsidies this year, a move that may cut Asian demand and slow global oil-consumption growth.

President George W. Bush yesterday called on Congress to lift a 27-year-old moratorium on offshore oil and gas drilling, to increase supply and lower prices.

``The Saudis will boost output, the U.K. is going after speculators, the U.S. is going to try and remove the ban on offshore drilling, China is removing subsidies and Russia will try to reverse their first quarter production decline,'' Sieminski said.

Russian Prime Minister Vladimir Putin pledged to reduce taxation on the industry as Russia, the world's biggest oil exporter after Saudi Arabia, faces the first annual production decline in a decade.

Volatility Drops

Oil's volatility on a 10-day basis dropped by more than 17 percentage points today, according to data compiled by Bloomberg. Volatility is a measure of how far the price of a commodity deviates from average closing prices over a period of time, such as 10 or 30 days.

Oil futures traded in New York veered 38 percent from the 10-day average, as of 2:27 p.m. New York time. They strayed 63 percent from the average on June 13, the highest volatility since January 2007.

Gasoline for July delivery fell 11.41 cents, or 3.3 percent, to settle at $3.3526 a gallon in New York. Futures reached a record $3.5762 a gallon on June 16. Heating oil for July delivery dropped 14.65 cents, or 3.8 percent, to close at $3.7135 a gallon in New York.

The profit margin, or crack spread, for making three barrels of crude into one of heating oil and two of gasoline has dropped 21 percent in five days. The margin is $13.873 at 3:12 p.m. today, the lowest since May 8, based on futures prices.

`High Rates'

``Refiners aren't going to run at high rates because of these low margins,'' said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. ``We need to see these margins improve or we'll end up with higher diesel and gasoline prices.''

Natural gas in New York declined after an Energy Department report showed that U.S. inventories advanced 57 billion cubic feet to 1.943 trillion cubic feet last week. Analysts forecast an increase of 58 billion cubic feet, according to the median of 23 estimates compiled by Bloomberg News.

Natural gas for July delivery fell 34.9 cents, or 2.6 percent, to settle at $12.861 per million British thermal units in New York.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

Last Updated: June 19, 2008 16:50 EDT