Oil closes lower; Iraq supply shock fears dwindle

Source: Denver International Airport

Oil futures weakened for a third straight session Monday on increased confidence that unrest in Iraq would not interrupt the country's oil exports.

Heavy fighting in the north of Iraq has had little impact on the southern refineries that produce around 90 percent of the OPEC member's oil shipments.

Brent is still up about 3 percent this month, its biggest monthly gain since August. But it has come off the nine-month high of $115.71 hit two weeks ago.

"The fear premium is abating as the chances of fighting in Iraq hitting oil supplies diminishes," said Carsten Fritsch, senior oil and commodities analyst at Commerzbank in Frankfurt. "It now looks very unlikely that the rebels will reach the major oil supply areas."

U.S. crude settled down 37 cents, or 0.4 percent, at $105.37 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange slid 94 cents, or 0.8 percent, to $112.36 a barrel.

On Friday, U.S. Secretary of State John Kerry and Saudi King Abdullah discussed global oil supplies during a meeting about the crisis in Iraq, a U.S. official said.

During the talks, Kerry referred to recent comments by a Saudi oil official that the world's largest oil producer would increase supplies if there was a disruption due to crises in Iraq or Syria.

The reopening of a port in Libya and an easing of tensions over the Ukraine crisis also weighed on oil.

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Although violence in Iraq remains contained, analysts said the fear factor would hold oil prices above $105 for U.S. crude and $110 for Brent in the near future.

"We'll be well supported as long as there are issues in Iraq and Russia," said Carl Larry, CEO of consultancy Oil Outlooks in Houston, Texas.

Economic data due this week will help investors gauge the outlook for the global economy and oil demand. Data due this week include U.S. June auto sales figures on Tuesday and U.S. June payrolls on Thursday, a day early due to the Fourth of July holiday.

Economists polled by Reuters expect U.S. jobs to increase 213,000 in June for a fifth straight month of gains above 200,000.

"It should be a supportive week for the economic fundamentals," said Richard Hastings, macro strategist at Global Hunter Securities in Charlotte, North Carolina.

--By Reuters. For more information on commodities, please click here.