Updated from 1:55 p.m. EDT

Oil prices fell again Friday, with the benchmark U.S. crude contract approaching $50. Oil and gas company shares joined the broader market in a selloff.

May crude closed down 64 cents to $50.49 a barrel in Nymex floor trading, having briefly traded below $50 Thursday for the first time in about two months. Gasoline futures lost more than a cent to $1.483 a gallon.

Prices have slumped in the past two weeks, falling about 13% from their record high of more than $57 a barrel, as traders reassess supply-and-demand fundamentals.

There's growing evidence that months of high prices have crimped demand, while recent signs of an economic slowdown also embolden the bears. The private International Energy Agency earlier this week predicted growth in energy consumption this year would be less than previously forecast.

"People are re-evaluating economic conditions, as reports show a softening in the U.S. economy," said Mike Armbruster, energy analyst at Altavest Worldwide Trading, in San Juan Capistrano, Calif. Speculators remain a big part of the oil market, and many continue to believe prices will recover. But once assumptions begin to change, and institutional investors start exiting, prices could face a significant drop, Armbruster said.

"Reality shows that supply levels are building up, and as long as inventories are on the rise, crude prices will continue to decline well under $50 a barrel," Armbruster said.

Another force pushing down prices is the possibility that OPEC will increase output for the second time in a month.

The cartel took a step in that direction Friday, announcing plans to increase its daily capacity to 32.7 million barrels a day, 1.6 million more than the average capacity in 2004. The expansion reflects new projects in Kuwait, Nigeria and the UAE, the cartel said.

It is in OPEC's best interest to keep oil markets well supplied and prices at bay. A recent bill for drilling in the Alaska's Arctic National Wildlife Refuge has received the Senate's endorsement for the first time, and was backed this week by the House, indicating legislators and policy makers are interested in providing alternative energy supplies.

But many economists believe OPEC's new production quotas are real and sustainable. Jim Williams, energy economist at WTRG Economics, said that "the excess capacity reported today is very critical. If world demand doesn't grow more than it already did, it is indeed possible for OPEC to increase its excess capacity to about 10%." According to Williams, OPEC now has about 5% excess production capacity, while it had only 1.5% spare capacity during the last two years.

"Looking at growing supply levels, perhaps OPEC can deliver more oil after all," says Mike Ambruster at Altavest.

The Amex Oil Index was down 2.34%, and the Philadelphia Oil Service Sector Index was down 1.76%.

Shares of major oil producers tumbled in late day trading as oil prices continued declining.

ExxonMobil

(XOM) - Get Report

lost $1.83, or 3.11%, to $56.92;

ChevronTexaco

(CVX) - Get Report

fell $1.18 cents, or 2.19%, to $52.59;

Royal Dutch/Shell

(RD)

dropped 75 cents, or 1.25%, to $59.02;

ConocoPhillips

(COP) - Get Report

dropped $4.09, or 3.90%, to $100.78 and

BP

(BP) - Get Report

dropped $1.27 cents, or 2.10%, to $59.35.

In other company news,

PetroChina

, the Chinese state-controlled oil and gas company reported production growth of 3.6% in the first quarter to 199.9 million barrels, as well as a gas production increased of 20% to 260.9 million in the quarter. Analysts were expecting a maximum 1% growth,

Reuters

reported. Shares declines $1.35, 3.33%, to $39.25.

Investors embraces today yet another dividend increase, this time form

Frontier Oil

(FTO)

, the independent refining and marketing company. Frontier said it will conduct a 2-for-1 stock split and raise its quarterly dividend payments by 33%.

Baker Hughes

(BHI)

, a provider of drilling equipment to the oil and gas industry, raised its first quarter earning forecast. The company said net income will be in the range of 52 to 53 cents a share, topping analysts' average estimates of 42 cents a share.

The magnitude of the Baker Hughes announcement is "a bit surprising," said analyst Jim Wicklund at Bank Of America in a note. "We would not anticipate other oil service companies to announce the same magnitude of surprise," the analyst said. Shares climbed 83 cents, or 1.92%, to $44.09.

Petroleum Development

(PETD)

, an independent gas and oil company, was raised to a buy from neutral by analyst David Tameron at Fist Albany Capital. Company shares are a "good quality at a cheap price" Tameron said in a report, as share prices provide an "attractive entry point for investors" based on potentially good exploration upside.