SAN FRANCISCO (MarketWatch) -- Crude-oil futures closed Thursday with a nearly $5-a-barrel loss as news that China raised retail fuel prices sparked concern over a slowdown in demand.

Crude oil for July delivery fell $4.75, or 3.5%, to close at $131.93 a barrel on the New York Mercantile Exchange. That was the contract's weakest closing level since June 10.

Prices on Nymex climbed as high as $137.35 earlier on the heels of a shutdown of an oil platform in Nigeria. The July futures contract expires on Friday, likely adding to volatility.

"The oil prices rollercoaster continues," said analysts at Action Economics. "The latest driver comes from reports that China will increase domestic fuel prices starting on Friday."

"This follows the trend of other Asian countries reducing government fuel subsidies, which should, over time, put a dent in demand," the analysts said.

China's National Development and Reform Commission said on its Web site that it raised gasoline, diesel and jet-fuel prices.

The price of gasoline was raised by 17% to 6,980 yuan ($1,014.24) per ton, from 5,980 yuan; diesel prices was raised by 18% to 6,520 yuan per ton, from 5,520 yuan; and jet-fuel prices was raised by 25% to 7,450 yuan per ton, from 5,950 yuan. See full story.

"This represents a significant increase on the populace that hardly has the staying power of the U.S. consumer," said Michael Fitzpatrick, an analyst at MF Global, in a research note.

"In terms of it representing the possibility of a definitive price break, it is too early to tell," he said.

Grabbing a lifeline

But Sean Brodrick, a natural resources analyst for MoneyandMarkets.com, said, "oil bears and stock bulls alike are seizing on this news from China like drowning men grasping at lifelines."

"I hope they can live with disappointment," he said in emailed comments. The effect is to raise China's gasoline and diesel prices by 46 cents a gallon, he said, and that's "probably not enough to have much impact on existing demand."

At the same time, Brodrick points out that China will see at least 6.6 million new cars, trucks and vans hit their roads this year.

“ 'I think this pullback [in prices] is one that can be bought. Give it a few days -- maybe look to enter early next week.' ” — Sean Brodrick,MoneyandMarkets.com

Given that, "I think this pullback is one that can be bought. Give it a few days -- maybe look to enter early next week," Brodrick said.

"No one thought they would raise prices ahead of the Olympics and after the earthquake," said Phil Flynn, a vice president at Alaron Trading.

James Williams, an economist at WTRG Economics, said it would be "even better" if members of the Organization of the Petroleum Exporting Countries would also lift their fuel subsidies.

But in its official announcement Thursday, China's NDRC didn't mention whether it will reduce the subsidies.

China's move is "not popular, but it will slow growth in consumption," said Williams, in emailed comments. "I had anticipated this move by the Chinese but did not expect it until after the Olympics. It may have been done now so that they could say that they were doing something at the meeting in Jeddah on the 22."

Members of the Organization of the Petroleum Exporting Countries as well as representatives from the world's oil-consuming countries will meet this weekend in Jeddah, Saudi Arabia, and an official announcement of an output increase is expected at the summit.

The Saudis are likely trying to "show that they care about high prices and want to contribute to the solution for political reasons" and trying to "talk down prices because they are concerned that they are too high," Michael Lynch, president of Strategic Energy & Economic Research, said in emailed comments.

The Saudis also "legitimately fear the hastening of substitution that ultra-high oil prices will bring," said Bernard Picchi, a senior managing director at Wall Street Access. See Commodities Corner.

AFP reported Thursday that a statement on Saudi Arabia's London embassy Web site said that the Middle Eastern country planned to boost daily output by 200,000 barrels per day, which would confirm comments on Sunday from U.N. Secretary General Ban Ki-Moon.

But the embassy Web site later withdrew the statement without any comment or elaboration, according to AFP.

Nigerian woes

Earlier Thursday, oil prices had gained on news that a Royal Dutch Shell oil platform in Nigeria was shut down after an attack by local militants.

Shell RDS.A, -1.68% (RDSA) said Thursday that it has temporarily halted production at its main offshore field in Nigeria in the wake of an overnight attack, the BBC reported on its Web site.

The attack targeted the platform, located about 75 miles off the coast of the Niger Delta, that typically produces about 200,000 barrels a day, the BBC said.

Traders are also focusing on expectations that Saudi Arabia, the world's biggest oil producer, plans to boost production by 200,000 barrels a day starting next month.

In related news Thursday, major oil companies are getting ready to formally announce historic contracts to return to Iraq some 36 years after the country's government took control of its giant oil reserves, the New York Times reported. See full story.

Natural-gas prices drop

Prices for natural gas fell Thursday, though they fared a bit better than oil-product prices.

July natural-gas futures closed down 34.9 cents, or 2.6%, to $12.861 per million British thermal units. The contract closed above $13 on Wednesday to trade at the highest futures prices have seen on the Nymex since late 2005.

Natural-gas inventories rose by 57 billion cubic feet for the week ended June 13, the Energy Department said Thursday. Global Insight expected the data to show an increase of 65 billion.

But prices fell, taking their cue from the drop in crude futures, as natural-gas traders took a breather from a climb past $13, which is the highest level for natural-gas futures in more than two years, according to Beth Sewell, a managing partner at Quantum Gas & Power Services.

"We blew through $13 and made it stick, so now we'll take a breather," she said, referring to the market's mentality at this pointing time.

Total natural-gas stocks now stand at 1.943 trillion cubic feet, down 376 billion cubic feet from the year-ago level and 52 billion cubic feet below the five-year average, the government data said.

Prices for petroleum products also fell. July reformulated gasoline fell 11.4 cents to finish at $3.3526 a gallon and July heating oil dropped 14.6 cents to close at $3.7135 a gallon.

The average U.S. price for a gallon of regular gasoline fell slightly for a third straight day to $4.073, but it's still up 35.9% from a year ago, according to AAA's Daily Fuel Gauge Report.

Meanwhile, energy equities fell Thursday, with the Philadelphia Oil Service Index OSX, -2.83% closing 1.4% lower at 345.76 after an earlier high of 355.37. See Energy Stocks.

Prices for gold futures climbed past $900 an ounce to close at their highest level in more than three weeks. See Metals Stocks.

Corn futures closed lower, breaking an 11-session winning streak. See Food Futures.