By Noel John and Sam Li
Nov 3 (Reuters) - Oil prices edged up on Tuesday after a report that the United States had struck Iran's Qeshm Island, raising concerns about an escalation of the eight-month conflict and prolonged disruptions to Middle East oil supplies.
US West Texas Intermediate crude was up 20 cents, or 0.21%, at $96.66 a barrel while Brent crude futures rose 3 cents, or 0.03%, to $104.8 a barrel by 0355 GMT.
Both benchmark prices dropped more than 7% on Monday as talks between Iranian and
Qatari officials lifted hopes for an end to the US-Israeli war with Iran.
The United States struck Iran's Qeshm Island, the Wall Street Journal reported on Tuesday, citing US officials. Some of the officials described the assaults as defensive in nature to prevent Iran from having the freedom to attack commercial ships in the Strait of Hormuz.
"The report added a degree of risk premium back into the oil price. Just when markets were starting to price in a more diplomatic path, this reminder of ongoing military activity has flipped the tone," said Tim Waterer, chief market analyst at KCM Trade.
However, the inability of prices to sustain those gains suggests that a substantial geopolitical risk premium is already embedded in oil prices, said Priyanka Sachdeva, head of market insight at Phillip Nova.
"Unless there is concrete evidence of further disruption to physical supplies or critical energy infrastructure, fresh headlines alone may struggle to sustain another rally."
Meanwhile, Tehran said on Monday that contacts between Iran and the US to end their war are continuing, after days of Iranian talks with Qatari mediators ended with altered proposals but no breakthrough.
Trump raised doubts on Monday about whether he would follow through on a threatened resumption of military strikes against Iran and said a deal with Tehran could happen.
The US-Iran conflict that began in late February has sharply reduced traffic through the Strait of Hormuz, which previously carried about a fifth of global crude oil and natural gas supplies.
The Iran war is a leading cause of high gasoline prices that are weighing on voters, and Trump is under pressure to end the conflict.
Brent ended October at its highest in six months on concerns that the Middle East conflict could escalate again after Tuesday's US midterm elections.
Iranian President Masoud Pezeshkian said Supreme Leader Ayatollah Mojtaba Khamenei had granted the government certain authorities for peace talks.
Additionally, the US will bring together delegations from Ukraine and Russia in Abu Dhabi on November 10 to 11 to discuss ending Moscow's war against Ukraine, post-war security agreements and de-escalation.
(Reporting by Noel John in Bengaluru and Sam Li in Beijing; editing by Lincoln Feast and Stephen Coates)
