Brent crude held steady above $113 per barrel on Tuesday and U.S. crude weakened slightly as fears over oil supply disruptions from Iraq offset thawing relations between Iran and the West.
Scores of Iraqis were killed on Tuesday during a battle for the provincial capital of Baquba as an uprising by Sunni insurgents continued to threaten the disintegration of Iraq. The fighting also shut the country's main oil refinery, starving parts of the country of fuel.
Islamic militants marching south towards Baghdad's Shi'ite-led government seized towns in the north of the country in the past week. However, Iraq's oil refineries in the south, which process most of the country's 3.3 million barrels per day of oil exports, have been unaffected so far.
Brent prices rose around 4 percent last week, the most since July last year, but the rally stalled after the Iraqi government tightened security around oil infrastructure. The loss of one third of total Iraqi oil production, along with rising demand in the second half of 2014, may slash global spare capacity and generate a price increase of up to $40 per barrel, according to a report released by Securing America's Future Energy on Tuesday.
The international contract for August delivery rose 50 cents to over $113 a barrel. The contract settled 48 cents higher on Monday, after touching an intraday high of $113.28. U.S. July crude settled down 54 cents at $106.36 a barrel. The U.S. July contract expires on June 20.
Further complicating the situation in Iraq, the Kurdistan Regional Government, whose position has strengthened in the north of the country, believes its share of total Iraqi oil sales should be as high as 25 percent, up from a current 17 percent, an official spokesman said.
U.S. and Iranian officials discussed the Iraq crisis although both ruled out military cooperation. The discussions were held on the sidelines of a meeting starting on Tuesday in Vienna as Iran and six world powers will try to narrow differences and end a decade-old nuclear dispute.
--By Reuters. For more information on commodities prices, please click here.