By Benjamin Parkin and Sarah McFarlane

Oil prices dropped Tuesday as trade tensions and expectations of growing production threatened to upset the global supply-and-demand balance.

West Texas Intermediate futures fell 1.2% to $65.07 a barrel at the New York Mercantile Exchange. Brent crude, the global oil benchmark, fell 0.3% to $75.08 a barrel on London's ICE Futures exchange.

Global markets fell on Tuesday after President Donald Trump said he was looking to extend duties on Chinese imports to $200 billion of goods, a sharp escalation of a recent trade dispute.

China last week said it planned duties against U.S. crude oil, among other imports, itself a response to earlier U.S. tariffs.

Traders were betting that the escalating dispute could threaten growth, global oil demand and a crucial market for American crude.

"We're seeing a reemergence of concerns about global trade," said Gene McGillian, vice president of research at Tradition Energy. "The record production that we're seeing in the U.S. would have trouble making it onto the global market."

Oil prices have whipsawed in recent sessions as traders prepare for a meeting of the Organization of the Petroleum Exporting Countries and its allies this Friday in Vienna, at which the global cartel is widely expected to sanction increased production.

Expectations have ranged between an increase of 300,000 barrels a day of oil production at the low end -- which some traders see as supportive to prices -- up to 1.5 million barrels a day.

A concern for traders, Mr. McGillian said, was that global supply from OPEC and others could increase as trade tensions start to stymie demand.

There are only a few producers who are able to increase output, including Saudi Arabia, Russia, the U.A.E. and Kuwait, which could mean other producers resist any production increase for fear it would send prices lower.

"There might be more intense discussions, but I guess in the end they will come up with a consensus decision for a small production increase in the short term," said Giovanni Staunovo, commodities analyst at UBS Wealth Management.

Brent prices have eased 5.9% since peaking at about $80 a barrel in May after OPEC-led cuts helped drain global inventories, prompting Mr. Trump to blame the cartel for making oil prices "artificially very high."

"Investors are still trying to understand if the fall of the past few weeks could be considered as an inversion or -- as it seems so far -- just as a correction," said Carlo Alberto De Casa, chief analyst at ActivTrades.

A rebel attack on Libyan ports has shut nearly half of the country's output, Mustafa Sanallah, head of the country's National Oil Corp., said Tuesday. The supply disruption is helping to underpin prices, analysts said.

Among refined products, gasoline futures fell 0.8% to $2.0379 a gallon while diesel contracts shed 0.5% to $2.1218 a gallon.

On Wednesday, markets will watch for official government data on weekly U.S. crude oil inventories from the Energy Information Administration. Analysts are expecting a decline in stockpiles of both crude oil and gasoline.

The American Petroleum Institute, an industry group, said late Tuesday that its own data for the week showed a 3-million-barrel decrease in crude supplies, a 2.1-million-barrel rise in gasoline stocks and a 757,000-barrel increase in distillate inventories, according to a market participant.

Write to Benjamin Parkin at Benjamin.Parkin@wsj.com and Sarah McFarlane at sarah.mcfarlane@wsj.com

(END) Dow Jones Newswires

June 19, 2018 17:17 ET (21:17 GMT)

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