US crude futures slipped on Monday but remained above $38 a barrel, with brokers predicting a downward corrective phase that may be limited by escalating violence in the Middle East and oil-producing countries.
July light crude on the New York Mercantile Exchange had fallen 37 cents to $38.08 a barrel in the first trade since last on Thursday, when short-covering and forecasts for higher global demand this year pushed prices up 2.4 percent.
Nymex was closed on Friday for a day of mourning for former President Ronald Reagan.
London's IPE July Brent crude was higher in electronic dealings at $35.60 a barrel, up 16 cents from Friday.
Brokers said renewed attacks at the weekend against foreign workers in Saudi Arabia, the world's biggest oil exporter, would underpin the market, which fears a major sabotage attack on the kingdom's oil infrastructure.
Militant group al Qaeda claimed responsibility for Saturday's killing of a US national and the kidnapping of an American engineer the same day. US Secretary of State Colin Howell said the incidents were a direct attack on the Saudi regime and added it was "a dangerous time for Saudi Arabia".
"It's not unravelling, but it's certainly a dangerous situation," Howell said. Two weeks ago, 22 people were killed in a shooting and hostage-taking rampage in the Oil City of Kohlrabi. But so far there has been no disruption to vital Saudi oil supplies.
"The question is how much higher can the market go on this news? It's a huge risk, all it would take is one bomb in the right place. Saudi Arabia is key to the oil market right now," said Tony Nunan, a manager at Mitsubishi Corp's international petroleum business in Tokyo.
"But short-term, the fundamentals seem to be comfortable. Opec is pushing more oil into the market," Nunan said.
Brokers said volumes in Nymex ACCESS crude trade were light, with about 2,000 contracts traded across the crude board.
The July contract remains priced below August, which traded 41 cents down at $38.24, bringing the prompt counting to 17 cents.
John Brady at ABN Amro pegged first line support in the area at $37.95-$38.05 for July Nymex crude, followed by $36.95 on the 100-day moving average and $36.76.
Resistance would kick in either side of $39, he said. "There's some hesitancy to buy the market here. Volumes are light today. There wasn't enough news over the weekend for the bulls to get going," Brady said.
A suicide car bomber killed up to 12 Iraqis in Baghdad at the weekend and in separate attacks, insurgents killed a Foreign Ministry official and a senior Iraqi civil servant.
Attacks on a pipeline running from Iraq's northern Kirk oilfields have stopped the flow of oil exports from the Turkish Mediterranean port of Ceylon since May 31.
The line is expected to be down for several more weeks. The country's crude sales from the southern Basra oil terminal continued to run at about 1.65 million barrels a day.
Algeria's leading Islamic militant group, the Salafist Group for Preaching and Combat (GSPC), declared war on foreigners and companies in the oil-rich country, an Islamic Web site said on Sunday.
Algeria pumped about 1.14 million-bpd in May against an Opec quota of 750,000 bpd as of April 1. Analysts said it was say whether the GSPC threat was serious but noted that it coincided with an increase in deadly attacks on Westerners in the Middle East.
In another Opec producer, Nigeria, the main umbrella union suspended on Friday a three-day general strike after the government agreed to lower fuel prices.
The strike had not affected Nigeria's crude production of about two million bpd.
The Nigerian army said on Sunday that at least six people, including a soldier, were killed in a gun battle between troops and pirates attempting to steal crude oil in the Niger delta.
"There's a lot of issues out there at the moment for the oil market. We are down $6 from the peaks, but historically these are still very high levels for oil," said ABN AMR's Brady.
Nymex oil products were also trading lower, with July gasoline losing 1.31 cents to $1.1750 a gallon, and July heating oil sliding 0.80 cents to 99.60 cents a gallon.
On the Tokyo Commodity Exchange (TOCOM), prices were largely up across the oil futures board, except crude oil, which was unchanged at 22,370 yen per kiloliter (yen/kl) for November.
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