By Alison Sider 

Oil prices plunged Friday as Saudi Arabia and Russia neared a deal to increase oil production after more than a year of holding crude off the market.

U.S. crude futures fell $2.83, or 4%, to $67.88 a barrel, on the New York Mercantile Exchange. Brent, the global benchmark, fell $2.35, or 2.98%, to $76.44 a barrel, on ICE Futures Europe.

Friday's move wiped out three weeks of gains and was one of the biggest recent reversals in what has been a powerful rally -- it was the U.S. benchmark's largest single day drop since July 2017.

Oil prices have surged by 40% since the Organization of the Petroleum Exporting Countries joined forces with Russia other major exporters a year and a half ago to attempt to shrink a glut of stored oil that had been weighing on prices.

Brent prices last week climbed to $80.50 a barrel, and both benchmarks have returned to levels last reached in 2014. With supply in Venezuela and Iran at risk of more disruption, some had started to worry that the group was in danger of sending prices so high that it could crimp economic growth and curtail demand.

"The day of reckoning was finally upon them -- they've more than done their job in rebalancing the market," said Ed Morse, global head of commodities research at Citigroup. "We think it was overshooting."

OPEC is set to meet June 22 and is expected to discuss ramping up output again in the second half of the year. An OPEC committee charged with overseeing compliance with the deal said Friday that the deal's adherents are cutting 152% of what they promised.

The committee "acknowledged the rising concerns expressed by some importing and consuming countries regarding potential shortages in the global oil market," and said it "reaffirmed participating countries' commitment to the stability of the market and energy security of the global economy."

Higher prices could strain emerging economies that OPEC is looking to for future demand growth, said Vincent Elbhar, managing partner at GZC Investment Management. Indian petroleum minister Dharmendra Pradhan, for example, recently expressed his concern that rising prices would hurt India's consumers and its economy in a call with his Saudi counterpart, Khalid al Falih.

The prospect that OPEC will put barrels back on the market this year limits the potential gains investors betting on higher oil prices, said Mr. Elbhar, who has bet that prices will fall.

"They just made it clear that the magic number was $80," he said. "You don't really have much upside left-if anything, you probably have downside."

Oil's gains picked up steam earlier this month after U.S. President Donald Trump pulled the U.S. out of the 2015 international nuclear agreement to curb Iran's nuclear program, setting the stage for renewed economic sanctions that could reduce Iran's output.

Saudi Arabia had said it is monitoring markets closely and was ready to step in and boost output quickly if necessary to stabilize markets.

At the same time, rapidly declining output in Venezuela's as the country's economic turmoil has worsened has posed another risk to supplies. Some analysts expect that country's output to fall below 1 million barrels a day by the end of the year -- down from over 2 million barrels a day a year ago.

Many expect producers to move cautiously in ramping up. If oil prices continue selling off, it may prompt Saudi Arabia to re-evaluate the move, Mr. Morse said.

"They don't want prices to collapse from here," said Michael Tran, commodity strategist at RBC Capital Markets. Saudi Arabia needs prices above $80 a barrel to balance its budget, Mr. Tran said. "The worst case scenario for OPEC is if they make a move prematurely."

Mr. Falih, the Saudi energy minister, on Friday wrote on Twitter that he had spoken with the director of the National Energy Administration of China and they agreed that "the current oil market anxiety is a reflection of the geopolitical situation and not a result of any supply shortage." But Mr. Falih said he "reiterated Saudi's commitment in collaboration with other producers, to guarantee availability of sufficient oil supply to compensate for potential loss and to meet rising demand."

The strength of Friday's selloff could be due to the large bullish positions investors had staked out -- something that can contribute to cascading selloffs when investors all try to unwind their bets at once, analysts said.

But Dan Pickering, head of the asset-management arm of Tudor, Pickering, Holt & Co., said OPEC's move could remove uncertainty about when OPEC will bring more production online, potentially clearing the way for another rally.

"This is not 2014 all over again. This is a market trying to soft land and not have either demand destroyed or price destroyed," he said.

Write to Alison Sider at alison.sider@wsj.com

(END) Dow Jones Newswires

May 25, 2018 16:14 ET (20:14 GMT)