London Brent crude fell to $23.40 a barrel, its lowest since mid-November before recovering to $24, down 68 cents. U.S. crude futures fell 82 cents to $27.80 a barrel.
According to Reuters, U.S. forces burst into the heart of Baghdad and entered two of President Saddam Hussein's palaces, but Marines hit tough resistance at key bridges on the capital's eastern flank.
U.S. military officers described the assault as a show of force rather than a final attack to take Baghdad, key prize in the 19-day-old war to oust Saddam.
Analysts said the fall of Baghdad will lead to a peaceful handover of Iraq oilfields not already held by the U.S.-led coalition.
British forces were in control of most of Iraq's main southern city, Basra, but continued to face some resistance in Basra's old town, said British spokesman Al Lockwood.
