Iran and six world powers have reached a deal that will grant Tehran sanctions relief in exchange for curbs on its nuclear program, Iranian and Western diplomats said.

Oil prices dropped as a result. At one point North Sea Brent crude was down by more than 2 percent to $56.70 a barrel. US light crude, also known as Western Texas Intermediate (WTI), was down around 3.4 percent to $50.40 a barrel on the news.

Oil prices had already lowered in the last few days in anticipation of a deal. Record output from Saudi Arabia, the world's biggest oil producer, and a booming shale industry in the US have also put downward pressure on crude prices.

Sanctions have almost halved OPEC member Iran's oil production, to a little over 1 million barrels per day. Tuesday's deal will likely see Iran increase its oil exports by up to 60 percent within a year, a Reuters survey of analysts said.

Although it may take Iran several months - and possibly until next year - to fully restore production, the oversupply in the markets and "the mere prospect of new oil will be bearish for sentiment," Amrita Sen, chief oil analyst at London-based consultancy Energy Aspects, told the Reuters news agency.

The International Energy Agency (IEA) recently warned that there was "massive oversupply" in the market and that prices were likely to drop further.

ng/cjc (Reuters, dpa)