Updated from 12:59 p.m. EDT

Oil prices closed below $40 a barrel for the first time since May 10, as Saudi Arabia said it would increase production, ahead of a weekend meeting between the organization of petroleum exporting countries and oil consuming nations in Amsterdam.

On the New York Mercantile Exchange, the July futures contract of the benchmark U.S. crude settled 87 cents, or 2.1%, lower at $39.93. after also closing lower Thursday. The price of the July gasoline futures contract fell 3 1/2 cents, or 2.5%, to $1.416 a gallon.

Oil prices have closed at record highs on the Nymex in four of the past eight sessions and came close to touching $42 a barrel, with traders worried about supply because of recent attacks on oil producing facilities in the Middle East ahead of the key summer driving season.

The Saudi action -- which appeared to be unilateral -- would increase the kingdom's daily production to 9 million barrels a day, up from what's thought to be its current output of 8.3 million barrels.

The world's biggest oil exporter, Saudi Arabia, also said it would propose at the meeting that the cartel raise production by 2 million barrels a day. Saudi Arabia had previously urged fellow OPEC members to increase production by 1.5 million barrels, or about 6%, to ward off any possible damage to world economic growth.

In recent days, both OPEC and some of its members have said the price spike is not their fault and that there is little than can they can do, according to media reports.

Gasoline prices are now above $2 a gallon in many parts of the U.S., which has raised questions about a dampening of consumer spending.

Market watchers expect little out of the weekend gathering, saying OPEC won't make any decisions on production until its regularly scheduled meeting in Beirut on June 3.

Bloomberg

quoted an OPEC official as saying a formal decision on the cartel's quota wouldn't be made until that meeting.

Most of the cartel's members are already producing more than their official quotas allow, such that OPEC's total output is thought to be 2 million barrels a day over its ceiling of 23.5 million barrels. There's considerable debate among analysts about whether many members have the capacity to boost production swiftly and for any extended period of time.