Oil prices dipped again after it rose as much as four per cent today, wiping out gains made earlier in the day as rising political tension between two of the biggest powers in the Middle East stoked concern about potential supply disruptions.
Brent crude, the global benchmark, fell to $37.06 per barrel, having risen as high as $38.99, after a report suggested US inventories had risen. Meanwhile, WTI crude fell to $36.63.
This mornings gains came following a breakdown in relations between Saudi Arabia, the world's biggest oil exporter, and Iran, which hopes to return to the market this year. The diplomatic row escalated in the wake of Saudi Arabia's execution of a prominent Shi'ite cleric over the weekend.
This afternoon Saudi Arabia banned all flights to and from Iran, adding that all commercial ties between the two will be cut.
Riyadh cut diplomatic ties with Iran yesterday following the storming of its embassy in Tehran. It's since been joined by fellow oil producers Bahrain, the UAE and Sudan.
"The two questions the market is grappling with are - where next in the Saudi Arabia/Iran stand-off? I think President (Hassan) Rouhani on the Iranian side would like to calm things down and push for no further escalation," Energy Aspects analyst, Richard Mallinson, said.
"The second question for the market is is there any uncertainty over the exact timing and volume of the return of Iranian barrels?" Mallinson added.
Despite today's jump, oil prices are still down by around two-thirds since mid-2014.
Nevertheless, market commentators expect some upward pressure on oil prices if Iran ramps up production once the sanctions against it are removed.
Iran plans to raise output by half a million to one million barrels per day, but Iranian officials said they did not plan to flood the market with its crude if there was no demand for it.