SINGAPORE: Brent crude traded near a two-week high at above $107 a barrel on Monday as simmering tensions between Russia and the West offset a rise in oil supply from OPEC's second-largest producer Iraq.
US Secretary of State John Kerry and Russian Foreign Minister Sergei Lavrov held talks on Sunday about ways to defuse the crisis over Ukraine, with Kerry telling Moscow that progress depended on a Russian troop pullback from Ukraine's borders.
Brent crude for May was at $107.87 a barrel by 0358 GMT, down 20 cents from Friday's settlement, the highest since March 14. US crude for May delivery edged down 24 cents to $101.43 a barrel after settling at the highest since March 7.
"Rising oil supply doesn't seem to be having a negative impact as people are prepared to buy on dips, mainly because of the Crimea crisis," Ben Le Brun, a markets analyst at OptionsXpress in Sydney said.
"There is still an element of a risk premium."
The West was considering more sanctions on Russia's vital industries including its oil and gas sector after the annexation of Crimea, while military manoeuvres kept investors on edge.
Rising crude production from the United States and Iraq capped price gains. Front-month Brent is set to post its first quarterly decline in three quarters, down about 2.5 percent as rising supply from Iraq and increased exports from Iran have kept the market well supplied, offsetting disruptions in Africa.
"It looks like $108 for Brent is a psychological resistance," said Yusuke Seta, a commodity sales manager at Newedge Japan, adding that 50, 100 and 200-day moving averages were at $108.10-$108.70 providing strong resistance.
Iraq has started production at the giant West Qurna-2 field, moving closer to its output target of 4 million barrels per day (bpd) this year. Oil condensate flows from Libya's Wafa field to the western Mellitah port are still blocked, state-run National Oil Corp (NOC) said.
Nigerian crude exports are set to fall to their lowest since 2009 due to a production outage for the Forcados grade.
Brent traditionally trades at a premium to WTI, and OptionsXpress' Le Brun said the Crimea crisis should have widened the premium.
Instead, front-month West Texas Intermediate prices are set for a 3 percent gain in the first quarter as new pipeline capacity drained oil from bloated inventories at the contract's delivery point in Cushing, Oklahoma to the gulf coast.
Newedge's Seta said the oil supply diversion may not last long as inventories along the gulf coast are too high in a low demand season.
This could widen the Brent-WTI spread up to $9 a barrel, he said. US crude oil exports that hit a 15-year high in January also helped eased a supply glut caused by booming shale oil output although exports remained severely limited by law.
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