Oil has risen more than nine per cent this year. The primary reason is a standoff over Iran's nuclear program that has threatened to disrupt oil supplies from the Middle East.
Benchmark U.S. crude fell US$2.48 to $105.61 per barrel in New York while Brent crude lost $1.59 to $124.12 in London.
The Saudi government said it aims "to provide adequate supplies of petroleum, stabilize oil markets and return oil prices to fair levels for producers, consumers and the oil industry." Saudi Arabia produces about 10 million barrels a day and says it has the ability to quickly raise that to 12.5 million barrels a day.
Iran exports more than two million barrels of oil each day. The European Union and the U.S. have imposed sanctions that make it tougher for Iran to sell its oil. In response, Iran has threatened to block oil shipments through the strategically important Strait of Hormuz, A fifth of world's oil supplies pass through the strait at the edge of the Gulf.
The ruler of Kuwait was quoted Tuesday by the state news agency as saying that Iran has assured its neighbours that it won't block the vital waterway. He also said his country is increasing production. Those comments contributed to the decline in oil prices.
The Saudis and Kuwaitis are trying to send a message that the market shouldn't be so concerned about Iran, independent analyst Jim Ritterbusch said. "If they can bring more barrels to refineries, then it could help oil prices" cool off.
Concern about a slowdown in China's economy also pressured oil prices. Mining giant BHP Billiton forecast weakening Chinese demand for iron ore used in steelmaking. Also, China raised the price of retail gasoline for the second time in two months, which could hurt demand for fuel.
Meanwhile, retail gasoline prices in the U.S. are now averaging $3.846 per gallon, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of regular is the highest ever for this time of year. The national average has risen by 57 cents per gallon since January.
In Canada, the price at the pump average C$1.293 per litre according to GasBuddy.com, up from $1.243 a month ago and $1.215 at this time last year.
In other energy trading, heating oil gave up 2.46 cents US$3.2367 per gallon and gasoline futures lost 0.47 cent to $3.3631 per gallon. Natural gas futures fell by 1.6 cents to $2.335 per 1,000 cubic feet.
AP Business Writer Adam Schreck contributed to this story from Dubai
Follow Chris Kahn on Twitter at http://twitter.com/ChrisKahnAPSuggest a correction