Oil futures have fallen
towards 112 dollars per barrel pressured by signs of a thaw in relations between Iran and the West.
Islamic 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.
“In the south, 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 recently, 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.
The violence highlights the threat.
Iraq’s biggest oil refinery, Baiji, has been shut down and its foreign staff evacuated, refinery officials said last Tuesday.
Brent crude for August delivery was down 24 cents to 112.70 dollars per barrel. The contract settled 48 cents higher on Monday after touching an intraday high of 113.28 dollars.
U.S. July crude was down 56 cents at 106.34 a barrel dollars, after closing one cent lower.
The U.S. July contract expires on today,  June 20.
Brent prices rose around four per cent last week, the most since July last year, but the rally has paused since the Iraqi government tightened security.
Andrey Kryuchenkov, analyst at VTB Capital, said that there was a five dollars risk premium in the oil price.
He added that the outage of Libyan oil exports, which are down to almost nothing from above one million barrels per day, were also an important factor.