Oil prices eased in Asian trade on Tuesday, but losses were limited as investors fret over a potential supply disruption due to the worsening sectarian violence in key crude producer Iraq.
US benchmark West Texas Intermediate for July delivery fell 18 cents to US $106.72 a barrel in mid-morning trade, while Brent crude for August declined 24 cents to US $112.70.
"Crude oil prices continue to face upward pressure from the risk of supply disruptions as Sunni insurgents intensify their attacks on northern Iraq," said Desmond Chua, market analyst at CMC Markets in Singapore.
Iraqi security were carrying out a counter-offensive against militants who have captured a swathe of territory in an advance to Baghdad, as Washington weighed drone strikes against the jihadist fighters.
The lightning offensive of Sunni extremists from the Islamic State of Iraq and the Levant (ISIL) group has taken territory in Iraq's north, where a relatively small crude output had already been off the market since March due to violence. There are now fears that the insurgency could spread to the south where most of Iraq's oil infrastructure is located.
The crisis has a direct bearing on global crude prices because Iraq is the second-biggest oil exporter in the 12-nation Organization of Petroleum Exporting Countries (OPEC) after Saudi Arabia.
Singapore's United Overseas Bank (UOB) said investors will also be keeping an eye on a two-day meeting of the US Federal Reserve's key policy-making committee starting later on Tuesday.
The central bank is expected further scale down its massive monetary stimulus programme, but new additions to the committee "could hold some surprises" in decision-making, UOB said.