Oil prices eased in Asian trade today, but the losses were limited as investors fuss over a potential supply disruption due to the worsening sectarian violence in key crude oil producer Iraq.

US benchmark West Texas Intermediate crude for July delivery fell 18 cents to $106.72 a barrel in mid-morning trade, while Brent crude for August delivery declined 24 cents to $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.

Insurgent attack

Iraqi security was 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 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.

Fed policy meet

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 today.

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.

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