Oil drops $3 to $134 a barrel

By Santosh Menon

LONDON (Reuters) - Oil fell $3 to near $134 a barrel on Friday on an industry newsletter report Saudi Arabia was considering a sizeable increase in crudeoutput to cool oil prices hovering near record highs.

The Middle East Economic Survey (MEES) reported on Friday that Saudi Arabia, the world's biggest oil exporter, was considering a sizeable increase in output to near record levels of around 10 million barrels per day ahead of a meeting of producers and consumers in Jeddah on June 22.

The kingdom this month is expected to be producing 9.45 million barrels per day (bpd), following an announcement in May that it will increase output by 300,000 bpd.

U.S. crude oil was down $2.36 down at $134.38 a barrel by 4:15 p.m.

It rebounded from a $4 drop to end the day higher in the previous session after concerns emerged about a possible strike in Nigeria, the world's eighth-largest oil producer.

Brent crude, whose July contract expires on Friday, was down $2.31 at $133.78 a barrel.

Separately, Saudi Oil Minister Ali al-Naimi, speaking to the state news agency SPA, reiterated that market fundamentals did not justify current high oil prices and the Jeddah meeting will seek a solution to high oil prices, which could hurt the world economy, especially developing countries.

Oil, which hit a record high of $139.12 last Friday, has repeatedly tested new peaks on fears of tight supplies.