 "Brent slips more than $2 after breakthrough Iran deal")
Tough sanctions against Iran in the past two years have slashed exports from the OPEC member by more than half and cost Tehran billions of dollars in revenue losses a month, keeping Brent above $100 a barrel despite weak global demand.
But a further drop in oil is unlikely until more details emerge on the agreement, with major factors influencing the market such as worries over when the United States will curb its monetary stimulus and outages in Libya.
Brent fell the most in more than three weeks to as low as $108.31 a barrel, and was trading down $2.45 at $108.60 by 0112 GMT. US oil slipped to as low as $93.64, and was 90 cents down at $93.94.
"Prices are reacting to the historic deal because it takes some of the risk premium out," said Ben le Brun, a market analyst at OptionsXpress in Sydney. "But this news is hot off the press, and so there is some knee-jerk reaction. Oil may not fall much from here and we may see some paring back of losses."
Iran and six world powers clinched the deal to curb Tehran's nuclear programme in exchange for initial sanctions relief, signalling the start of a game-changing rapprochement.
The deal also suspends sanctions by the US and the European Union on several other sectors of Iran's economy in the initial six-month period.
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The relief, which the US State Department said is "limited, temporary, targeted and reversible" would allow about $4.2 billion of revenue from oil sales to be transferred in instalments from accounts frozen in the West if Iran fulfils its commitment.
Apart from the revenue loss from reduced oil exports, Iran has billions of dollars stuck in banks in countries which buy its oil because the sanctions have cut off transfer facilities.
The White House estimates that Iran has lost more than $80 billion since the beginning of 2012 because of lost oil sales. It also estimates Tehran's earnings over the next six months will be $30 billion down compared with a six-month period of 2011, before sanctions were imposed.
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But sanctions that prevent energy companies from investing in Iran, and have slashed its oil exports to around 1 million barrels per day (bpd) from 2.5 million bpd, remain in place.
"The market will probably want to see the nitty-gritty details of the agreement before we see any further significant declines in prices," Le Brun said.
Further declines were also stemmed by reduced oil shipments from Libya. Exports have been running at a fraction of the levels seen earlier this year of more than 1 million bpd and the government is struggling to cope with protesters who have taken over eastern oil ports and a western terminal in pursuit of political demands for more rights.
Investors will also look at a raft of housing reports from the United States to gauge the country's economic outlook. The Fed's last policy meeting suggest officials are preparing to reduce the pace of bond-buying in coming months as long as the economy continues to improve.
The Fed's massive asset-purchase programme has been a key driver of investment in global commodities.