LONDON: Oil edged back above $114 a barrel on Tuesday, halting its decline from a nine-month high, supported by fighting in Iraq, supply disruption in Libya and expectations of a decline in U.S. crude inventories.
Violence in Iraq has not affected crude supply from southern terminals, the outlet for almost all the country's exports. But analysts expect tension in OPEC's second-largest producer to remain supportive for prices.
"The elusive risk premium is here to stay in jittery Brent trading this week, while we do not expect sustained gains past $115-$115.50 unless supplies in the south of the country are seriously threatened," said Andrey Kryuchenkov, analyst at VTB Capital in London.
Brent crude was up 12 cents to $114.24 by 1137 GMT, having fallen from a nine-month high of $115.71 last Thursday. The benchmark had its largest one-day drop since May 16 on Monday. U.S. crude edged up 15 cents to $106.32.
"The ongoing uncertainty means that no sharp price slide is likely," said Carsten Fritsch, analyst at Commerzbank. "In the next few weeks, we expect to see Brent trading at above $110."
In Libya, where unrest has crippled oil output, an oil port that reopened at the weekend closed again and production is around 270,000 bpd, a fraction of the 1.6 million bpd it produced before the 2011 civil war.
U.S. intervention in the Iraq crisis, with air strikes or other military action, could lead to higher oil prices, but such steps appear less likely for now.
Secretary of State John Kerry on Monday promised "intense and sustained" U.S. support for Iraq, but said the country would only survive if its leaders took urgent steps to bring it together.
The Iraq crisis poses a threat to oil supplies at a time when outages in Libya, Syria and Iran have already curbed global production by almost 3 million bpd, or more than 3 percent of daily global demand.
"Some 22 million bpd of OPEC's 30 million bpd of production comes out of the Middle East and it is a region in turmoil," said David Hufton of oil broker PVM. "It is an earthquake zone and the plates are shaking. The potential impact on oil prices is all too obvious."
Aside from geopolitical supply risks, investors will focus this week on the latest surveys of U.S. oil supplies. A Reuters survey forecast U.S. crude inventories fell 1.3 million barrels on average last week, while product stockpiles rose.
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