The agreement - struck in Geneva over the weekend - helped Brent crude shed over $2 a barrel, its biggest drop for more than three weeks, to trade at around $108.70.
It was seen as positive in terms of not only easing immediate tensions between western powers and Iran but also eventually leading to more oil coming to market - helping to bring down the cost of petrol and other oil-based products.
However, the terms of the agreement mean Iran will not be allowed to increase oil sales for six months.
Despite fierce opposition to the deal from Israel, European shares extended last week's solid gains which took some back to multi-year highs - with Germany's DAX hitting a fresh record.
However, the rises were tempered by uncertainty over the region's economic outlook.
Analysts also said that trading volumes were likely to suffer further this week due to the US Thanksgiving holiday on Thursday, with the end of the month nearing.
In London, the FTSE 100 was trading positively - boosted by airline stocks.
But David Battersby, an investment manager at the stockbroking firm Redmayne Bentley, told Sky News he did not expect the fall in oil costs to be extended.
He said of the rise in airline shares: "Many of the contracts for the purchasing of oil will have been hedged one to two years out so it's more an expectation that things will get better on the geopolitical front that we have a better outlook for the companies rather than a short term lift in revenues for them."
(c) Sky News 2013
Original headline: Oil Prices Fall On Iran Nuclear Agreement
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