LONDON: Brent crude held near $115 a barrel on Monday, supported by worries about potential disruptions to supply from Iraq where insurgents took control of strongholds along the border with Syria at the weekend.
Brent was up 8 cents at $114.89 by 1105 GMT, off an intraday high of $115.66. U.S. crude for August delivery was up 22 cents at $107.05, after touching $107.45 earlier in the session. The July contract expired on Friday.
Traders and analysts said that some of the steam had come out of the rally as the market was becoming desensitised to the news out of Iraq. Although insurgents made further gains at the weekend Iraq's crude exports have not yet been affected by the conflict.
"The supply news isn't really supporting oil prices - the only thing supporting them is the fear factor," said Carsten Fritsch, an oil analyst at Commerzbank in Frankfurt.
Militants from the Islamic State of Iraq and the Levant (ISIL) seized three towns in Iraq's western Anbar province after taking control of two frontier crossings on the Iraq-Syrian border at the weekend.
Sunni tribes also took control of a border crossing between Iraq and Jordan late on Sunday after Iraq's army pulled out of the area following a clash with rebels.
Meanwhile, there was a lull in fighting at Iraq's largest refinery, the 300,000 barrel-per-day Baiji complex, on Sunday, although militants still surround the plant.
The deterioration of the situation in Iraq pushed Brent futures to $115.71 a barrel last Thursday, the highest level since September 9, 2013.
Although there has been no impact on Iraq's oil exports, the market is pricing in the implications of escalating tensions, which threaten Iraq's medium-term capacity growth targets, analysts at Barclays Capital said in a note.
"The oil price is making steady progress as the news on the ground is not terribly encouraging. There is not really any incentive to sell these markets at the moment," said Ole Hansen, senior commodity strategist at Saxo Bank.
Some suggested that the market had overestimated the impact of the conflict. Commerzbank's Fritsch argued that about 90 percent of Iraqi crude exports are shipped from export terminals in the south of the country, which are unlikely to be reached by insurgents.
In addition, the Kurds continue to export oil from Iraqi Kurdistan with a third tanker departing Turkey's Mediterranean port of Ceyhan on Monday, whilst a fourth tanker is being loaded.
KERRY IN BAGHDAD
This week the market is likely to focus on the response from the United States to events in Iraq, and whether the insurgents will start to meet greater resistance.
U.S. Secretary of State John Kerry landed in Baghdad on Monday to press Prime Minister Nuri al-Maliki to form a more inclusive government and to discuss U.S. actions to assist Iraq.
On the demand side, data from China showed an expansion in the country's factory sector for the first time in six months, also helping to underpin oil prices.
A preliminary HSBC survey showed that new orders surged in June indicating that the economy is stabilising thanks to Beijing's measures to shore up growth.
The HSBC/Markit Flash China Manufacturing Purchasing Managers' Index (PMI) rose to 50.8 in June, the first time since December that the PMI has been in growth territory.
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