Anticipation of a successful agreement, which is likely to see an extra 600,000 to 700,000 barrels come on to the market within a few weeks, saw the oil price fall by a up to $1-a-barrel during the day, dragging down stock market prices with it.
The exploration sector was hardest hit, with Lasmo falling 6.5p to 176.5p and Enterprise dipping 5p to 460p. BP was off 5p at 569.5p, but Shell, less dependent on upstream exploration and production earnings, bore up well, losing just 3p at 926.5p.
The deal will allow Iraq to raise $2bn for humanitarian aid by selling oil over a six month period. It comes after four years of on-off negotiations between Baghdad and the UN on how to help ease the hardships caused by an oil embargo the UN imposed in 1990 after Iraq invaded Kuwait.
The long haggling had convinced some industry observers that an agreement would not be reached, but the threat has been overhanging the oil price and analysts said yesterday it had largely discounted the deal.
"It's been a long painful delivery, but the signs have been for quite a long time that it would happen. It seems to have been factored into the crude price already", said one analyst.
The price of North Sea Brent oil fell by up to $1 a barrel in London trading yesterday, with August futures closing at around $17. In the last few days, Brent has fallen from well above $19.
A recent study by the Energy Information Administration, part of the US Federal Government, suggested that the addition of 700,000 barrels of oil to world supplies would result in a cut of $3- to $4-a-barrel in the price. That prompted one analyst to suggest the price could go down as low as $16.Reuse content