* U.S. aircraft hit Islamic State artillery in Iraq
* Kurds say northern pipeline operating normally
* Brent hits $106.85 a barrel before dropping back
(Updates prices to settlement, adds Brent-WTI spread)
By Lorenzo Ligato
NEW YORK, Aug 8 Brent crude oil fell toward $105
a barrel on Friday, following U.S. air strikes in Iraq that
analysts said might lower the risk of oil supply disruptions
from OPEC's second-largest producer, while U.S. crude found
support from a rebounding stock market.
Brent oil prices rose on Thursday on reports that the United
States was considering air strikes on the Islamic State fighters
who have advanced across Iraq's semi-autonomous Kurdish region.
But traders took profits on Friday after the Pentagon confirmed
the military intervention in the north of the country.
"In essence we find U.S. air strikes more bearish than
bullish for oil as the act finally draws a line not to cross for
IS and re-enforces both the stability in south Iraq and in
Kurdistan," said Oliver Jakob, an analyst at Switzerland-based
Petromatrix, in a note to traders.
Brent hit a weekly high of $106.85 earlier in the
session, but soon entered negative territory and settled 42
cents lower at $105.02 a barrel.
U.S. crude rose 31 cents to settle at $97.65 a
barrel, off an intraday high of $98.45. U.S. prices were
supported by a sudden rebound in the stock market prompted by
news that Russia was ending military drills near the Ukrainian
The spread CL-LCO1=R between the two benchmarks closed at
Both Brent and U.S. crude inverted their upward trajectory
in mid-morning trading, as initial alarm about escalating
violence in Iraq gave way to the recognition that the U.S. air
strike intervention could in the long-run secure oilfields not
just in the north, but also in the more prolific oil-producing
regions further south.
Brent spiked above $115 in mid-June on fears that violence
in Iraq would disrupt oil supplies. But prices have fallen back
more than $10 over the past six weeks, as it became clear that
Iraqi oil continued to flow steadily from southern fields, over
500 miles (900 km) from the escalating violence in the north.
The Kurdistan Regional Government on Friday said its oil
export pipeline to Turkey was operating normally at a rate of
120,000 barrels per day (bpd).
In Kurdistan, producer Afren suspended output at
its small Barda Rash oilfield, but Genel Energy said
its Taq Taq and Tawke oilfields continued producing and averaged
230,000 bpd this week.
PVM Oil Associates Managing Director David Hufton said a
loss of oil production from the Kurdish region would not affect
Putting further pressure on prices, OPEC's monthly report
showed a modest 167,000 bpd increase in production for July and
a slight downward revision to 2014 demand, pointing to more
comfortable global supplies.
(Additional reporting by Jack Stubbs and Jacob
Gronholt-Pedersen; Editing by Dale Hudson and Chris Reese)