Updated from 7:51 a.m. EDT

Oil prices were flat at midday Tuesday, having dipped below $36 a barrel to a new two-and-a-half month low earlier in the session as supply worries continued to ease.

The benchmark U.S. crude was up 1 cent to $36.25. Prices last closed below $36 a barrel April 6. Gasoline futures rose less than 1 cent to $1.15 a gallon.

Prices fell sharply Monday on positive developments in Iraq, where the U.S., in a surprise move, handed over power to local authorities two days ahead of schedule and oil exports returned to normal following weeks of repairs to pipelines feeding the country's southern terminals.

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Growing violence in Iraq, including sabotage attacks on its oil infrastructure that have disrupted supply, have periodically spooked the energy markets.

Iraqi exports have ranged between 1.6 million and 1.8 million barrels a day recently.

Supply worries were also reduced Friday as the Norwegian government intervened in an oil workers' strike that threatened to severely reduce production. Norway produces more than 3 million barrels a day and is the world's third largest oil exporter.

Oil prices are down more than 12% from their record high of $42.33, touched right before the Organization of Petroleum Exporting Countries' meeting two weeks ago. Prices briefly fell through $37 last week.

Members of the cartel agreed to raise the group's production quota by 2 million barrels a day in July and another half-a-million barrels a day in August, should that prove necessary. The current ceiling is 23.5 million barrels a day. Market analysts say the move is largely symbolic because the cartel's members are already producing some 2 million barrels a day above their official quotas.

Traders bid up prices on short-term supply concerns triggered by strong global demand and terrorist attacks on oil industry personnel and facilities in the Persian Gulf region ahead of the peak summer driving season in the U.S. and Europe.