U.S. oil settled lower on Monday, bouncing off a new 15-month high as the imminent influx of oil from Libya helped alleviate fears about global supply and violent clashes in Egypt.
Ongoing turmoil in Cairo—where the military deposed the country's president—helped send Brent crude and West Texas Intermediate skyrocketing. During the trading session, those gains cooled after a senior Libyan source told Reuters that Libya's major Sharara oil field will resume operations after an agreement was reached with the armed group that shut it down last month.
After rallying to a new 15-month high at $104.12, U.S. crude settled down 8 cents at $103.14, marginally lower than Friday's close at $103.22. Brent crude, the European benchmark, dipped more than 30 cents but stayed above $107 a barrel. Earlier in the session, the contract reached as far as $108.04, its highest since April 4.
The spread between the two benchmarks was more than $4, after earlier narrowing to $3.78.
"The market is a bit less concerned about a major disruption in Egypt, and was probably overbought a little bit going into the holiday weekend," said Phil Flynn, energy analyst at Price Futures Group.
He said it was not unusual for prices to surge ahead of holiday weekends. U.S. markets were closed on Thursday for the Fourth of July.
"Going into the holiday weekend we're always nervous about geopolitical risk, and the market has a tendency to overcompensate, so we're seeing some of that protection buying start to come off."
Dozens of people were killed in Cairo on Monday, medical sources said. Islamist protesters angered by the military overthrow of President Mohammed Morsi said they were fired on at the Cairo military barracks where he was being held.
Any conflict in the Middle East raises worries of disruption at major oil-producing areas or with oil shipments.
"The situation is very tense, keeping market participants on edge and adding to recent concerns over the ongoing violence in Syria," said Andrey Kryuchenkov of VTB Capital.
So far, ports and shipping through the Suez Canal—through which a major portion of the world's oil is shipped—have been operating normally.
"It is Egypt's position as a major transit point for global crude oil movements that explains the current concern and geopolitical risk premium assigned to the goings on in that country," said a research note from Standard Bank.
Investors also had an eye on the euro zone. Greece secured a 6.8 billion euro ($8.7 billion) lifeline from the euro zone but was told it must keep its promises on cutting public sector jobs and other reforms in order to get all the cash, officials said Monday.
—CNBC.com With Reuters.