Brent crude held near $115 a barrel today, supported by worries about potential disruptions to supply from Iraq where Sunni insurgents took control of strongholds along the border with Syria at the weekend.
Brent was up eight cents at $114.89, off an intraday high of $115.66. US crude for August delivery was up 22 cents at $107.05, after touching $107.45 earlier in the session.
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.
The violence in Iraq can have a direct bearing on global crude prices because the country is the second-biggest oil exporter in the 12-nation Organisation of Petroleum Exporting Countries (OPEC) after Saudi Arabia.
It has more than 11% of the world's proved resources and produces 3.4 million barrels a day.
But although insurgents made further gains at the weekend Iraq's crude exports have not yet been affected by the conflict.
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.
Some analysts suggested that the market had overestimated the impact of the conflict.
Commerzbank said that about 90% of Iraqi crude exports are shipped from export terminals in the south of the country, which are unlikely to be reached by the Sunni insurgents. In addition, the Kurds continue to export oil from Iraqi Kurdistan with a third tanker departing Turkey's Mediterranean port of Ceyhan today, whilst a fourth tanker is being loaded.
This week the market is likely to focus on the response from the US to events in Iraq, and whether the insurgents will start to meet greater resistance.
US Secretary of State John Kerry landed in Baghdad today to press Prime Minister Nuri al-Maliki to form a more inclusive government and to discuss US 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.