Iraqi government forces battled Sunni militants for control of the country’s biggest refinery on Thursday.
If the 300,000 barrels per day refinery stays closed, Baghdad will need to import more oil products to meet its own domestic consumption, further tightening oil markets.
Fields south of Baghdad, where most of Iraq’s 3.3 million barrels per day of oil is produced, as well as exports remain unaffected.
But heavy fighting north of the capital and foreign oil firms beginning to pull out staff pose a risk to supplies from OPEC’s number two producer.
“This raises the risk of production halts in the near future, so although there are no disruptions at the moment, we do see further upside to prices,” Newedge Japan commodity sales manager Ken Hasegawa told Reuters.
Brent crude slipped $0.08 to $114.98 per barrel at Friday morning, after ending $0.80 higher at $115.06 per barrel, the highest settlement since 6 September 2013.
The US crude oil contract, which expires on Friday, increased $0.27 cents to $106.70 per barrel.
The contract settled $0.46 cents higher in the previous session, but was on course for a third weekly decline in four.
“Brent is at a high for the year, triggering some short covering and possibly adding further long positions,” Hasegawa said. “The contract may go to a previous high of around $117.30 hit last August.”
President Barack Obama said he was sending up to 300 US military advisers to Iraq.
Speaking after a meeting with his national security team, Obama said he was prepared to take “targeted” military action later if deemed necessary, although insisted US troops would not return to combat in Iraq.