Brent crude hovered above $105 a barrel on Monday, dropping from a one-week high hit on Friday, as US intervention in Iraq eased concerns over the risk of disruption to supply from Opec's second-largest producer.
Analysts have said that US air strikes on Islamic State targets in northern Iraq over the weekend could help enforce stability in Iraq, curbing the risk of supply disruptions. Iraqi Kurdistan said on Friday that its oil output remained unaffected.
September Brent crude had edged up 3 cents to $105.05 a barrel early on Monday. The contract jumped more than $1 to hit a weekly high of $106.85 on Friday before settling 42 cents lower.
US crude gained 21 cents to $97.86 a barrel.
"The way in which oil is behaving with respect to the Iraqi geopolitical tensions is really the balance between potential short-term supply disruptions, which so far have been non-existent, versus the long-term supply growth prospects," said Mark Keenan, head of commodities research Asia at Societe Generale.
"It's unlikely to move higher unless there's a material disruption in supply. But the back-end of the curve has done most of the movement, with the premium staying in prices towards that area because of concerns about future output growth."
Iraq's oil exports from the south currently remain at near record levels and the Kurdistan Regional Government's (KRG) oil pipeline via Turkey is operating normally and pumping 120,000 barrels of oil per day despite an advance by Islamic State fighters in northern Iraq.
But the instability has prompted oil companies in Iraq and Iraqi Kurdistan to withdraw staff and raised doubts about whether Iraq will be able to raise output on the long run.
Last week, Brent rose to a premium over immediate prices for the first time since 2012 on long-term supply concerns over tensions in Iraq, Libya and Ukraine.
"Possibly for the first time in history, you've got geopolitical risks affecting long-term prices more than short-term prices which is obviously unusual," Keenan said.
An increase in Opec production in July also weighed on prompt Brent. Opec said the group managed to increase output in July despite violence in Iraq and Libya, pointing to more comfortable global supplies. The group also trimmed its 2014 global oil demand growth forecast for a second consecutive month.
US crude futures remained supported, with immediate prices higher than those in future months, supported by low inventories at its delivery point in Cushing, Oklahoma. Cushing inventories fell to minimal operating levels after new pipeline capacities started diverting oil from Mid-west to the gulf coast earlier this year.