Oil Edges up as Traders Worry about Supply from Iraq

Crude oil climbed on Thursday, rebounding from the lowest prices in months as the security situation in northern Iraq deteriorated, reviving concerns about supply disruptions.

Brent and U.S. crude both rallied in late-morning trade, after reports that U.S. President Barack Obama was considering airstrikes on Islamic militants in OPEC's No. 2 oil producer.

The New York Times report on possible airstrikes cited unnamed administration officials. White House spokesman Josh Earnest would not confirm that airstrikes were being considered, saying: "There are no American military solutions to the problems in Iraq." 

Reports that Obama was considering air strikes "helped move the markets, but we need to see that actually happen before oil prices can go up higher," said Gene McGillian an analyst at Tradition Energy in Stamford, Connecticut. He added that ample global supplies were still pressuring oil prices, noting that there were no disruptions in Iraq yet.

Brent crude rose 78 cents to $105.37 a barrel by 1:43 p.m. EDT (1743 GMT). It had settled at $104.59 a barrel on Wednesday, its lowest finish since Nov. 7.

U.S. crude rose 29 cents to $97.21 a barrel, after settling at $96.92 a barrel in the previous session, the weakest since February.

In mid-June, Brent and U.S. crude hit nine-month highs on worries about the Sunni insurgency. But oil prices have fallen more than $10 a barrel over the past six weeks despite the continued unrest, as traders and investors shifted their attention to weak U.S. and global economic fundamentals.

Earlier on Thursday, two car bombs killed nine people in the Kurdish-held Iraqi oil city of Kirkuk, police and medical sources said.

Shares in Oslo-listed oil producer DNO fell as much as 24 percent on news of the insurgents' advance, as investors worried about companies exposed to the Kurdish region. The company said its operations at the Kurdish Takwe field near Iraq's Turkish border had not been affected.

"Some market participants must have become a little complacent about what's happening in Iraq," said Andrew Lipow, president of Lipow Oil Associates in Houston, Texas.

Meanwhile, refining issues in the United States, including the four-week shut-down of a refinery in Coffeyville, Kansas, are weighing on U.S. crude, ahead of the refinery turnaround season in autumn, characterized by typically weaker demand.

(Additional reporting By Jack Stubbs and Jacob Gronholt-Pedersen; Editing by William Hardy, Dale Hudson, David Evans, Edward McAllister and David Gregorio)