London futures for the benchmark Brent crude oil dropped below dollars 16 per barrel for the first time since before the 1991 Gulf war, on the belief the United Nations may soon ease an embargo on Iraqi oil exports - and then soared by more than a dollar.
The sharp rally from dollars 15.90 to above dollars 17 followed news the Organisation of Petroleum Exporting Countries would meet in Vienna on 28 July to consider the crisis in the market.
Iraq's re-entry into a market from which it has been banned since it invaded Kuwait in 1990 would threaten a glut at a time when several other Opec members are already exceeding mandated supply quotas.
Monday's price fall was triggered when a UN negotiator, Rolf Ekeus of Sweden, said in Baghdad that he had reached an agreement with Iraq on monitoring its weapons. He said he thought this could make it easier to strike a deal in other talks at the UN this week. These concern the terms on which Iraq may be allowed to sell oil worth dollars 1.6bn, under supervision, to pay for food, medicine and war reparations.
Later, however, diplomats at the UN said that obstacles remained to an accord on these limited oil sales.
'The market's fear of Iraqi sales may be worse than the eventual reality,' Geoff Pyne, an energy economist with UBS Securities in London, said.
In their rollercoaster ride, London September Brent futures initially fell to dollars 15.90 per barrel - down dollars 3 since May - in a market that seemed reconciled to the inevitability of early Iraqi exports. But late in the trading day the Brent contract touched dollars 17.06 after the news that Opec would meet at the end of July regardless of any outcome in the Iraqi negotiations.