Brent crude, used as an international benchmark, fell as low as $27.67 a barrel, its lowest since 2003, before recovering slightly to trade at $28.17.
The price of US crude fell below $29 a barrel to $28.86.
The lifting of the Iran sanctions mean half a million barrels more oil per day could be produced, say analysts.
“The drop was due to the Western sanctions on Iran being lifted. This means we will be seeing a bigger oil glut with Iranian crude exports coming back to the market,” said Phillip Futures analyst Daniel Ang.