June 16 (Bloomberg) -- Crude oil fell from a record on signs that Saudi Arabia will increase production to stabilize prices.

The kingdom will produce 9.7 million barrels of oil a day next month, an increase of 200,000 barrels from June's level, King Abdullah told United Nations Secretary-General Ban Ki-Moon, according to a UN spokesman. Prices earlier climbed to a record $139.89 after a fire cut North Sea output and the dollar declined against the euro, bolstering the appeal of commodities.

``The possible Saudi production increase and the North Sea fire don't warrant a price swing of more than $5,'' said Gene McGillian, an analyst at TFS Energy LLC in Stamford, Connecticut. ``We weren't able to get to $140, then fell to little changed, and suddenly without a warning prices were more than $1 lower. This market is being whipped around.''

Crude oil for July delivery fell 25 cents to settle at $134.61 a barrel at 2:49 p.m. on the New York Mercantile Exchange. Prices are up 98 percent from a year ago.

``When you put in a new record and fail to see any follow- through, it suggests that there is some underlying weakness in the market,'' said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York.

Saudi Arabia has called a meeting for June 22 in Jeddah to help stabilize prices. Crude-oil prices fell 2.7 percent in New York last week as Saudi Oil Minister Ali al-Naimi described the surge in the commodity as ``unjustified'' and called the Jeddah meeting of producers, major industrial nations and banks.

``I hope expectations for the meeting aren't too high,'' said Robert Ebel, chairman of the energy program at the Center for Strategic and International Studies in Washington. ``The Saudi increases that are being talked about aren't that large. Given that global oil demand is about 86 million barrels a day it will take a big chunk to make a difference.''

$140 Calls

July $140 calls, or bets that oil prices would rise above that amount, were the most actively traded options contract on the Nymex today. July options expire at the close of Nymex trading tomorrow.

The contract dropped 72 cents, or 86 percent, to 12 cents, or $120 a contract as of 1:58 p.m. It peaked at $4.11, or $4,110 a contract, on June 6, when July futures rose by a record $10.75 a barrel. Open interest on the contract was at 8.4 million barrels, down from a high of 12.9 million barrels May 27.

``I think the options expiration tomorrow explains a lot of this volatility,'' said Tim Evans, an energy analyst for Citi Futures Perspective in New York. ``Traders started to short the market when we didn't quite make it to $140 today.''

Short positions are bets that prices will fall.

BP Plc said it began pumping oil and natural gas from its Thunder Horse field in the Gulf of Mexico on June 14. The field, which the company says may be the largest discovery to date in the Gulf, will have an output capacity of 250,000 barrels a day of liquids and 200 million cubic feet a day of natural gas. BP said it would add more wells this year.

Brent crude oil for August settlement declined 40 cents, or 0.3 percent, to settle at $134.71 a barrel on London's ICE Futures Europe exchange. Prices reached a record $139.32 today.

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

Last Updated: June 16, 2008 17:33 EDT