Updated from 12:04 p.m.

A day after topping $34 a barrel for the first time in more than nine years, oil prices plunged on Wednesday, weighed down by indications that Iran, a leading OPEC hawk, was warming to the idea of increasing oil production.

Crude oil futures fell $2.87 a barrel, or 8.4%, to end at $31.26, marking the largest one-day decline in over a year. Crude slipped another 40 cents after the close, a trader on the

New York Mercantile Exchange

said.

Gasoline futures were also down sharply, dropping 6.73 cents, or 6.6%, to end at 95.18 cents a gallon on the New York Mercantile Exchange.

"Iran really seemed to turn things around," said Tom Bentz, an analyst and trader at

Paribas Futures

in New York.

On Wednesday, oil ministers of Iran and Saudi Arabia issued a statement regarding the need to "balance the market in order to reach sustainable price levels." The statement from the largest producers in the

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Organization of Petroleum Exporting Countries

signaled an about-face in Iran's hawkish sentiment.

Previously, Iran along with Algeria and Libya, said they did not believe there was a need to increase production in the second quarter, when demand tends to slip.

Bentz noted that there was other news that added to the market's bearish mood. Nigeria resumed loading oil on ships despite a strike, and the

American Petroleum Institute

reported that U.S. crude stocks rose 7.6 million barrels last week, compared with expectations for a 500,000-barrel increase.

"We were looking for a small draw or a small build, but there was a 7 million build in crude stocks," he said.

But Bentz noted that the downward correction following a steep run-up in prices appears to have created a buying opportunity since it was unlikely that OPEC would decide to increase production enough to satisfy world demand.

"If they raise by 1.2 million barrels, it's not enough," Bentz said. "They are afraid to raise production too much."

He said the market would need an increase of two million barrels a day coupled with the expected drop in demand in order for oil prices to reverse course. And even if OPEC ramps up crude production, gasoline prices are still likely to stay high, since it would take time to get refined crude oil to market.

Bentz added that the next support level to be tested would be $30 a barrel.

OPEC is scheduled to meet in Vienna on March 27 to set production targets for the second quarter.