By Anushree Mukherjee
Aug 11 (Reuters) - Oil prices pared gains on Tuesday after hitting their highest for more than a week as signs of progress in talks between Oman and Iran over shipping through the Strait of Hormuz were weighed against ongoing disruption to Middle East energy flows.
Brent crude futures fell 21 cents, or 0.24%, to $87.51 a barrel by 1138 GMT. U.S. West Texas Intermediate crude futures were down 4 cents, or 0.05%, at $82.09.
Both benchmarks hit their highest since July 31 earlier
in the session, with Brent rising as high as $90.03 a barrel and WTI touching $84.61.
Talks between Oman and Iran on the future of shipping in the Strait of Hormuz are now at an advanced stage, Qatar's foreign ministry spokesperson said on Tuesday.
"Any signs of de-escalation or any signs of a deal are good news for risk assets and bad for oil, obviously. But it's all talk at the moment. It's all headlines. There's no meaningful progress," said Fawad Razaqzada, analyst at City Index and FOREX.com.
Both contracts had jumped more than 5% on Monday after U.S. President Donald Trump responded to Iran's conditions for a peace deal with his own demands that Iran pay compensation for people killed in wars, attacks and protests, which is likely to complicate efforts to reopen the Strait of Hormuz.
"I don't see oil going below $80 any time soon, unless there's a surprise announcement of a deal that reopens the Strait of Hormuz, because the oil market is tightening," Razaqzada added.
GEOPOLITICAL RISK CONTINUE
Shipping data showed that traffic through the Strait of Hormuz dropped to six vessels on Monday, compared with a 10-day average of about 11 vessels.
In a note on Monday, Barclays analysts said that crude oil and refined product net exports through the Strait of Hormuz averaged 3 million barrels per day (bpd) in the week ending August 7, down from 4.4 million bpd the previous week.
Before the Iran conflict began in late February, about a fifth of global daily oil and liquefied natural gas supplies passed through the Strait of Hormuz.
A cargo ship was attacked on Tuesday by Yemen's Iran-aligned Houthis in the Bab el-Mandeb Strait, killing three crew members, said two Yemeni coast guard sources and two military officials in the government.
"The chokehold risk around both the Strait of Hormuz and the Bab el-Mandeb remains highly significant. Even intermittent restrictions or the threat of further incidents keep insurance costs elevated and force longer shipping routes ... hence energy flows look likely to stay constrained near term," said Tim Waterer, chief market analyst at KCM Trade.
Elsewhere, the Ukrainian military said on Tuesday that it had attacked an oil refinery in Orsk, the second-largest city in Russia's Orenburg region and an important industrial hub.
(Reporting by Anushree Mukherjee and Ishaan Arora in BengaluruEditing by Keith Weir and David Goodman)
