News of the deal sent the Brent crude price down $1.15 to $56.70 a barrel, while US crude fell $1.05 to $51.15.
Later, Brent crude was down 33 cents - or 0.6% - while US crude was up 27 cents, or 0.5%.
The lifting of sanctions is expected to see a surge in Iran's oil output.
Iran could increase its oil exports by up to 60% within a year, according to a survey of 25 oil analysts questioned by the Reuters news agency.
Twelve of those polled believe Iran could raise oil output by up to 250,000 barrels per day in the first six months, while eight others predicted it could increase by as much as 500,000 barrels.
Nuclear inspectors will want to verify Iran's compliance with the terms of the deal before lifting sanctions, but the country's Oil Minister Bijan Zanganeh is confident the country can reach full capacity quickly.
Sarosh Zaiwalla, a London-based lawyer specialising in sanctions, said there was huge excitement, despite the potential problems ahead.
"Sanctions have crippled Iran's oil production, halving oil exports and severely limiting new development projects.
"Foreign trade and investment will allow Iran to make huge efficiencies and drive down the cost of production."
Edward Morse, global head of commodities research at Citi in New York, said that after years of underinvestment there would be a long delay before exports reached their full potential.
"Sanctions have clearly impaired Iran's ability to maintain its mostly mature oilfields, let alone develop new projects," he said.
It is predicted that even a modest initial increase in  output will pull international oil prices down further as the market is already producing around 2.5 million barrels per day above demand.
Amrita Sen, chief oil analyst at London-based consultancy, Energy Aspects said, "Given how oversupplied the market is with Saudi output at record highs, the mere prospect of new oil will be bearish for sentiment."
Oil price reaction has muted after the commodity initially fell by more than $1 a barrel following a deal with Iran on limiting nuclear activity in return for lifting economic sanctions.