US benchmark West Texas Intermediate for July delivery jumped 35 cents to USD 107.26 a barrel in late-morning trade, while Brent crude for August gained 44 cents to USD 112.90.
"Markets remain on high alert on developments in Iraq. Investors are focused on Iraq and the potential for further (supply) disruptions," Michael McCarthy, chief market strategist at CMC Markets in Sydney, told AFP.
The militant offensive, spearheaded by the jihadist Islamic State of Iraq and the Levant, has taken a huge swathe of predominantly Sunni Arab territory in northern Iraq since last week, and was advancing on Baghdad amid grisly reports of atrocities.
The crisis has a direct bearing on crude prices because Iraq is the second-biggest oil exporter in the 12-nation Organization of Petroleum Exporting Countries (OPEC) after kingpin Saudi Arabia.
Among OPEC members, Iraq ranks behind Saudi but ahead of Iran and Kuwait, and also has proven crude reserves of 140.3 billion barrels, and 3.158 trillion cubic metres of natural gas, according to cartel figures.