Brent futures climbed 35 cents to $110.30 a barrel early on Thursday, after earlier hitting $110.40, the highest since 29 May.
US oil gained 18 cents to $104.58 a barrel. The front-month WTI contract on Tuesday hit $105.06, its highest since 3 March.
There has been a muted response in the oil markets so far to the situation in Iraq after an al Qaeda splinter group moved in on Iraq’s largest refinery at Baiji, said Ric Spooner, chief market analyst at Sydney’s CMC Markets.
“It reflects the view that people would want to see further evidence of disruption and more threat to supply,” Spooner said.
“There’s quite a lot at stake if things do deteriorate.”
Brent could climb to around $111.50 a barrel in the next two days to reflect investors concern over escalating violence in Iraq, he said.
Iraq’s southern oilfield export facilities, which ship about 2.6 million barrels per day, were “very, very safe”, the country’s oil minister Abdul Kareem Luaibi said on Wednesday.
This came after al Qaeda insurgents overran Tikrit on Wednesday, threatening the Baiji refinery, which can process 300,000 barrels per day and supplies most of Iraq’s provinces and Baghdad.
Earlier the militants had seized control of Mosul, Iraq’s second biggest city.
Oil prices were also supported by last week’s 2.6 million bpd drop in crude inventories, Spooner said. Analysts polled by Reuters had forecast a 1.9-million-barrel drop.
US crude is expected to hold around $105 per barrel, Spooner forecast.
“In the short-term I expect a widening of the WTI-Brent spread reflecting what happens in Iraq,” Spooner said.
Investors were also keeping an eye on Libya after oil minister Omar Shakmak said it aimed to produce 800,000-900,000 bpd this year if output is restored after protests had cut daily production to under 200,000 barrels.
“The markets are increasingly waiting to see really tangible evidence that that’s going to happen,” Spooner said.
Investors were watching as well for the release of key economic data from the US later on Thursday and figures from China on Friday for industrial production and retail sales.