Oil prices fell sharply yesterday after the United States gave 10 European countries and Japan a reprieve from sanctions relating to trade with Iran and Saudi Arabia promised to pump more crude if needed.
On Tuesday, the US said Japan and 10 countries in the European Union would not be subject for another six months to punitive measures - due to come into force on June 28.
Brent, the European benchmark, dropped by 1.2 per cent to US$124.10 a barrel on Tuesday night while US futures fell by 2.2 per cent to $105.60 a barrel.
Ali Al Naimi, Saudi Arabia's oil minister, said the world's largest producer of crude could lift output by a further 25 per cent to alleviate any supply shortages.
"My only mission is to convey to you that there is no supply shortage in the market," said Mr Al Naimi. "We are ready and willing to put more oil on the market."
In spite of the soothing noises, concerns remained, and Brent prices were flat in yesterday's trading.
Saudi Arabia produced 9.9 million barrels per day (bpd) of crude last month and claims to have a total pumping capacity of 12.5 million bpd.
This claim has been questioned by sceptics, who believe that much of the additional capacity would take longer than 90 days to be activated, thus not falling under the International Energy Agency definition of spare capacity.
"It was an attempt to signal to the market that they have enough spare capacity, because there are increasing doubts about that," said Amrita Sen, an oil analyst at Barclays Capital. "In our view, anything that can be brought on relatively quickly and sustained is at a maximum another million barrels [per day] from here."
Iran exported about 2 million bpd last year before fresh US and EU sanctions aimed at halting its nuclear programme.