The London market closed down as oil prices swung back and forth amid volatile trading.
The FTSE 100 Index fell 24.2 points to 5780 as Brent Crude hit its lowest price since November 2003 at 27.69 US dollars a barrel just before the market opened.
The move came as the West dropped its economic sanctions against Iran, allowing the country to export oil freely and settling the dispute over the regional power's nuclear programme.
Iran said it can pump an extra 500,000 barrels of oil a day, which will come on to a market that is already oversupplied with Middle Eastern crude, meaning prices are expected to trade even lower.
But Brent Crude lifted to 28.77 US dollars later in the session, sending BP up 2.4p to 340.5p, while Royal Dutch Shell fell 14p to 1337.5p.
Germany's Dax and the Cac 40 in France are both down slightly. In New York the Dow Jones Industrial Average is closed for Martin Luther King Jr Day.
The pound was a cent up against the euro at 1.31, after French president Francois Hollande pledged to redefine France's business model and declared what he called "a state of economic and social emergency".
Mr Hollande unveiled a two billion euro (£1.5 billion) plan to boost hiring and catch up with a fast-moving world economy.
Sterling was also up slightly against the US dollar at 1.43.
Elsewhere, Argos owner Home Retail Group, which is being pursued by supermarket Sainsbury's, said it has agreed to sell DIY chain Homebase to Australian retail giant Wesfarmers for £340 million.
John Coombe, chairman of Home Retail Group, said: "We believe that this is the best deal for shareholders and for the business."
Home Retail chief executive John Walden added that the group did not need a deal with Sainsbury's to turn around Argos, according to a weekend report in The Sunday Times.
FTSE 250 firm Home Retail slipped 0.5p to 153.1p.
Back in the top flight, shares in Sainsbury's fell 4.4p to 239.5p, with investors concerned that the supermarket will have to raise any bid it makes for the retailer.
Dublin-based drug maker Shire was a top performer in the FTSE 100 after broker Exane BNP upgraded the stock to outperform from neutral.
A week ago, Shire struck a 32 billion US dollar (£22 billion) cash-and-shares deal to acquire US-based Baxalta in a push to create a leading player in the rare diseases segment of the drug market.
Exane BNP said while Baxalta was not the best acquisition option for Shire, the deal is value-enhancing.
Shire rose 71p to 4250p.
The biggest risers in the FTSE 100 Index were Glencore up 1.7p at 75.2p, Compass up 22p at 1143p, Arm Holdings up 16p at 949p and Shire up 71p at 4250p.
The biggest fallers in the FTSE 100 Index were Sports Direct International down 19.4p at 390p, DCC down 135p at 5005p, Pearson down 16.5p at 692p and Provident Financial down 68p and 2903p.