LONDON: Oil futures dipped towards $112 per barrel on Tuesday, with investors booking profits after a rapid spike in prices, but market players saw scope for further gains if violence in Iraq threatened production from OPEC's second-biggest producer.
Militants have seized towns in the north of the country in the past week, although Iraq's 3.3 million barrels per day of oil exports remain unaffected so far.
"(The rally) has paused rather than come to an end and it will go substantially higher if there's any threat to the south (where the majority of oil production is centred)," said Christopher Bellew at Jefferies Bache.
"A threat to Baghdad could affect mechanisms for buying and selling oil, too." BP Chief Executive Bob Dudley said on Tuesday the oil company's operations in Iraq were unaffected by the violence.
Still, Iraq's oil growth targets look increasingly at risk, the International Energy Agency said, the threat to supplies from political instability and violence. Brent crude for August delivery was down 72 cents to $112.22 per barrel by 0823 GMT.
The contract settled 48 cents higher on Monday, after touching an intraday high of $113.28. US July crude was down 80 cents at $106.10 a barrel, after closing 1 cent lower. The US July contract expires on June 20.
Brent prices rose around 4 percent last week, the most since July last year, but the rally has paused since the Iraqi government tightened security.
IRAN, UKRAINE
US and Iranian officials discussed the Iraq crisis although both ruled out military cooperation.
They met on the sidelines of a meeting starting on Tuesday in Vienna as Iran and six world powers aim to narrow differences and end a decade-old nuclear dispute.
A successful outcome could see additional Iranian crude exported to global markets.
There were threats to supply elsewhere too. Russia cut off natural gas supplies to Ukraine on Monday in a dispute over unpaid bills that could increase demand for alternative fuels such as oil.
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