June 16 (Bloomberg) -- Crude oil fell for a second day in New York on speculation Saudi Arabia will increase production, reducing risks to global growth from near-record energy prices.

Saudi Arabia, the world's biggest oil exporter, may announce an output increase at a meeting it is hosting in Jeddah on June 22, an OPEC official said yesterday. The Middle East kingdom will pump an extra 200,000 barrels a day next month, Agence France- Presse reported yesterday, citing United Nations Secretary- General Ban Ki-Moon. This would boost world supply by 0.2 percent.

``I wouldn't be surprised if they do'' increase output, Peter McGuire, managing director of Commodity Warrants Australia Pty in Sydney, said in a Bloomberg Television interview. ``It's just a little bit in their hands. When you control the spigot, you control the refineries, you control the whole game.''

Crude oil for July delivery fell as much as $1, or 0.7 percent, to $133.86 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $134.05 a barrel at 12:01 p.m. in Singapore.

The contract dropped 1.4 percent to settle at $134.86 a barrel on June 13, taking last week's decline to 2.7 percent.

``Everybody is going to take a wait and see approach on this,'' said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp. in Tokyo. ``It's prudent for people to back off and see what happens.''

Brent crude for August settlement declined as much as 83 cents, or 0.6 percent, to $134.28 a barrel on London's ICE Futures Europe exchange at 11:49 a.m. Singapore time.

Prices ``Unjustified''

Oil in New York reached a record $139.12 on June 6. Crude fell last week as Saudi oil minister Ali al-Naimi described the surge in the commodity as ``unjustified'' and called the Jeddah meeting of producers and major industrial nations to help stabilize prices.

Rising food and fuel costs have replaced the credit squeeze as the biggest threat to the world economy, Finance ministers from the Group of Eight nations said yesterday.

Oil also fell last week as the dollar posted its biggest gain against the euro since 2005, reducing the appeal of commodities as an investment hedge against inflation. OPEC, producer of 40 percent of the world's oil, cut its forecast for world demand a fifth time, reflecting slower global growth

Oil demand this year will rise 1.1 million barrels to 86.88 million barrels a day, OPEC said in a June 13 report. That's about 60,000 barrels a day less than the group's previous monthly estimate.

Contango Curve

The additional Saudi oil may help replenish falling crude oil inventories in the countries that make up the Organization of Economic Cooperation and Development.

The International Energy Agency, an adviser to 26 oil- consuming nations, reported on June 10 that OECD crude stockpiles fell 8.1 million barrels in April versus a five-year average increase of 30 million barrels.

The ``counter-seasonal'' decline contributed ``to the sharp rise in prices at that time,'' the IEA said.

Increasing supply to the market may lower the price for oil futures closest to delivery versus those for later delivery, a market structure known as contango, said Mitsubishi's Nunan. That type of market would encourage storing oil as the crude would gain value over time.

Contango ``would encourage inventory builds because it would financially make sense to build them,'' said Mitsubishi's Nunan. ``You can buy the cheap prompt and sell it forward as long as it covers the tank charge.''

``If the Saudis can break the upside momentum, it could cause the front month to get sold off and then the contango starts to feed on itself and it pays to put things in storage,'' he said.

Khursaniyah

Oil for delivery in July on the Nymex is at a discount of 61 cents a barrel to the August contract. The December future is trading at a premium of $1.21 a barrel to the front-month.

Saudi Arabia is planning to start up its Khursaniyah field within the next month, said an official with state-owned Saudi Aramco on June 13. Output from the site is expected to peak at 500,000 barrels a day.

UN Secretary General Ban said that Saudi Arabia's Al-Naimi told him the country would add 200,000 barrels a day of output for July after increasing output by 300,000 barrels a day for June, said AFP.

``The scary thing is people are saying it's the last bullet,'' said Nunan. ``The Saudi warning shouldn't be taken lightly. If that can't get the market down then we're in real trouble. Here comes $150 to $200.''

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.netGavin Evans in Wellington at gavinevans@bloomberg.net

Last Updated: June 16, 2008 00:07 EDT