Violence in Iraq has sent oil prices close to a nine-month high.
Brent crude fell 27 cents to $114.79 a barrel, after reaching $115.71 on Thursday, the highest since September 2013.
Oilfields south of Baghdad, which export at least 2.5 million barrels per day of oil, are still unaffected.
But the fighting in the north poses a risk to supplies, while foreign oil companies are beginning to pull out staff.
Paul Horsnell, head of commodities research at Standard Chartered bank, said: “The market has priced in existing geopolitical risk.”
Global spare capacity in oil production is at about 2%, he said, meaning that a spike in demand of more than 2% will outstrip production.
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