Oil falls below $104 as output, supplies seen stable despite Iraq tensions

September Brent crude fell $1 to $103.68 a barrel after 0700 GMT. The contract on Monday fell 34 cents to close at $104.68.

Reuters| Last Updated: Aug 12, 2014, 13:16 PM IST

Singapore: Brent crude extended losses for a third straight session, dropping below $104 a barrel on Tuesday as fresh unrest on the streets of Baghdad was seen as posing little threat to the OPEC producer`s oil output.

Iraq on Monday named Haidar al-Abadi as the new prime minister to end the eight-year rule of Nuri al-Maliki, but Maliki has refused to go and deployed special forces to force a dangerous political showdown in Baghdad.

US President Barack Obama said the naming of Abadi was an important stride towards rebuffing Islamic State militants, who have overrun large swathes of northern Iraq.

Maliki said the decision was a "dangerous violation" of the constitution and vowed to "fix the mistake".

Oil markets are not reacting because there has still not been any supply disruptions, said Ankit Pahuja, a commodity strategist with investment bank ANZ.

September Brent crude fell $1 to $103.68 a barrel after 0700 GMT. The contract on Monday fell 34 cents to close at $104.68.

US crude was down 95 cents to $97.13 a barrel at 0715 GMT.

"In terms of the physical side of things, particularly for Brent, there are pretty high inventories at the Atlantic Basin at the moment and that`s holding back gains," said Pahuja.

Iraq is OPEC`s second-largest oil producer and signs of disruption to its oil supplies would lift oil markets, as seen in mid-June when violence in the country - as well as in Ukraine and Libya - helped to send Brent above $115 a barrel.

Oil production from Iraqi Kurdistan remains unaffected despite an incursion by Islamic State militants along the autonomous region`s border, its Ministry of Natural Resources said in a statement on Saturday.

In July, exports from Iraq`s southern oilfields held at near record levels of around 2.5 million barrels per day (bpd), with output unaffected by fighting elsewhere in the country.

Limited supply disruption in Libya and weak market fundamentals were also pressing oil prices down, said commodity sales manager Ken Hasegawa at Newedge Japan.

Despite clashes between rival armed factions in Tripoli and Benghazi, a spokesman for Libya`s National Oil Company said on Monday that all oilfields were secure and that Libyan oil output was around 450,000 bpd, down from 500,000 bpd two weeks ago.

Tensions between the West and Russia over Ukraine have also failed to impact oil markets for now.

President Vladimir Putin said on Monday that Russia is sending an aid convoy to eastern Ukraine despite urgent Western warnings against using humanitarian help as a pretext for an invasion.

Ukraine has reported that Russia has massed 45,000 troops on its border, while NATO has said there was a "high probability" Moscow would intervene militarily in the country`s east, where Kiev`s forces are closing in on pro-Russia separatists.

Egypt, in the meantime, is acting as a mediator for Israeli and Palestinian as negotiators resumed indirect talks on Monday to end the month-old Gaza war, Egypt`s state news agency said, after a new 72-hour truce held for a day. 

Pahuja said he expects US crude to strengthen on a potential drawdown of stocks.

US commercial crude oil stocks were forecast to have fallen 2.2 million barrels in the week to Aug. 8, a preliminary Reuters survey of six analysts showed on Monday.