By Stephanie Yang and Christopher Alessi 

U.S. oil prices dropped to two-month lows on Tuesday, hurt by the prospect of rising supply and concerns over global growth.

Light, sweet crude for December delivery declined 4.2% to $66.43 a barrel on the New York Mercantile Exchange, on track for its largest one-day drop since July. Brent, the global benchmark, dropped 4.2% to $76.44 a barrel. The U.S. close was a two-month low, while Brent settled at its lowest level since early September.

"It's taking a real severe walloping today," said Gene McGillian, research manager at Tradition Energy. "The question now is, how severe of a correction are we going to see?"

On Monday, Saudi Energy Minister Khalid al-Falih reportedly told a Russian news agency that his country would increase crude production to 11 million barrels a day, compared with the current average of 10.7 million barrels a day.

"That rhetoric draws parallels to OPEC's strategy that helped crash crude prices lower in late 2014, though today's market has much more limited spare capacity and lower overall inventories," said analysts at Schneider Electric.

Stock markets also tumbled Tuesday on worries over global economic growth. The Dow Jones Industrial Average fell 1.4%, close to erasing all of its gains for the year. The S&P 500 fell 1.5% and the Nasdaq Composite Index fell 1.6%, on track to close in correction territory.

"This market was going to be under pressure anyhow, along with anything seen on the risky side, but then the Saudis came out with that statement and added to the downside pressure," said Bob Yawger, director of the futures division at Mizuho Securities U.S.A. "It's hard to really get out there and find a bullish situation here."

In recent weeks, crude has often moved in tandem with falling stock prices as investors have sold risky assets and economic concerns have raised questions about global demand.

On Tuesday, UBS analysts said they expect oil-demand growth to slow in 2019 due to higher prices and weaker economic growth. Earlier this month, both the International Energy Agency and the Organization of the Petroleum Exporting Countries also lowered their global demand-growth estimates for this year and next.

"There seems to be growing concern about demand growth that's underpinned by the equity markets and the economic outlooks," said Mr. McGillian,

Meanwhile, some analysts are expecting to see another build in crude stockpiles in government data due Wednesday. That would continue a four-week trend of increasing U.S. supplies that has weighed on the market this month.

Mr. Falih's pledge comes amid escalating tensions between Saudi Arabia, the world's largest exporter of crude, and the West over the killing of Saudi dissident journalist Jamal Khashoggi. Analysts and experts have speculated that if the U.S. and other Western nations were to enact sanctions on Saudi Arabia, the kingdom could impose an oil embargo that would send prices soaring.

Since President Trump pulled the U.S. out of a 2015 international agreement to curb Iran's nuclear program and reimposed sanctions, production and exports from Iran have fallen.

The IEA earlier this month said Iranian supply fell to a 2 1/2 -year low in September as buyers continued to reduce their purchases before the Nov. 4 deadline. Crude production fell by 180,000 barrels a day month-on-month, to stand at 3.45 million barrels a day last month, the agency said.

The Iranian shortfall helped to boost Brent above the $85-a-barrel threshold earlier this month for the first time in roughly four years.

Prices were also bolstered by a late September decision by OPEC and its partner producers, led by Russia, to not raise production at a faster rate than planned. OPEC and its allies agreed in late June to begin gradually increasing crude production after more than a year of holding back output.

Gasoline futures fell 4.3% to $1.8243 a gallon and diesel futures fell 3.5% to $2.2371 a gallon.

Write to Stephanie Yang at stephanie.yang@wsj.com and Christopher Alessi at christopher.alessi@wsj.com

(END) Dow Jones Newswires

October 23, 2018 15:34 ET (19:34 GMT)

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