By Sam Li and Trixie Yap
Oct 15 (Reuters) - Oil prices fell more than 1% on Thursday as investors weighed risks to supply from attacks on shipping through the Strait of Hormuz against US efforts to cut petroleum shipping costs by easing sanctions on vessels.
Brent crude futures fell $1.76, or 1.7%, to $104.3 a barrel by 0625 GMT, while US West Texas Intermediate crude futures were down $1.06, or 1.1%, to $94.03, reversing gains from the previous session.
WTI rose to a three-week high in the prior session
after Yemen's Iran-backed Houthis attacked Saudi Aramco's headquarters and Tehran said it was deploying new tactics to target ships in the Strait of Hormuz and keep oil prices high.
A container ship and a dry bulk carrier both sank near the strait in the past 24 hours after being hit by projectiles in separate incidents, maritime officials said on Wednesday.
Attacks around the waterway have surged over the past 10 days, with Iran saying it is stepping up strikes in response to the US blockade of its ports and tougher sanctions introduced last month.
With the Iran war having disrupted shipping and driven up freight costs to record highs, the Trump administration is considering easing sanctions on so-called shadow-fleet vessels that have transported oil and petroleum products from countries including Russia, Iran and Venezuela to help ease prices, a US official said on Wednesday.
The new talks centre on the United States potentially allowing "legal oil" to flow on previously sanctioned vessels, the US official said.
Increased output from Russia and the Middle East has kept a lid on prices. Russia's crude oil production rose by 65,000 barrels per day in September to 8.43 million bpd but remained down 870,000 bpd year on year, the International Energy Agency said on Wednesday.
The IEA also said crude oil exports from Middle East Gulf producers rose by 4.4 million bpd in September to around 75% of prewar levels.
"While there is little concrete evidence of a near-term peace deal, oil continues to find its way to buyers through alternative routes and logistical arrangements," said Phillip Nova's head of market insights, Priyanka Sachdeva, in a client note.
"These workarounds have helped prevent a more severe supply shock, although they come at a higher cost and leave global flows vulnerable to further disruption."
In the US, crude oil and distillate inventories fell, while gasoline stocks rose last week, market sources said on Wednesday, citing data from the American Petroleum Institute.
Crude stocks fell by 11.1 million barrels in the week ended October 9, sources said. That was a much bigger draw than analysts polled by Reuters expected.
"Despite the sharp inventory draw, oil prices barely reacted. The failure to rise on bullish news suggests investors are cautious about chasing prices higher at current levels," said Haitong Futures in a note on Thursday.
Official numbers from the US Energy Information Administration are due at 12 p.m. EDT (1600 GMT), delayed by a day following the Columbus Day holiday on Monday.
(Reporting by Sam Li and Trixie Yap; Editing by Sonali Paul and Joe Bavier)
