By Anmol Choubey
BENGALURU, April 14 (Reuters) - Oil prices fell in early Asian trade on Tuesday as signs of potential U.S.-Iran dialogue to end their war reduced concerns about supply risks stemming from the U.S. blockade of the Strait of Hormuz.
Brent futures declined by $1.86, or 1.87%, to $97.50, while U.S. West Texas Intermediate (WTI) crude fell $2.25, or 2.27%, to $96.83 by 0003 GMT.
Both benchmarks had risen in the previous session, with Brent climbing more than 4% and WTI nearly 3%, after the U.S.
military began a blockade nL6N40V09S of Iran's ports.
The U.S. military said nL1N40W0DH on Monday that its blockade of the Strait of Hormuz would extend east to the Gulf of Oman and Arabian Sea, while ship-tracking data showed two ships turned around in the strait as the blockade went into effect.
Iran, in response, threatened to target ports in Gulf-bordering nations following the collapse of weekend talks in Islamabad aimed at resolving the crisis.
"Despite the breakdown of peace talks in Pakistan over the weekend, Trump has managed to take some steam out of the oil price again dangling carrot of a possible deal," said Tim Waterer, chief market analyst at KCM Trade.
Sources familiar with the negotiations said dialogue nL4N40W0L7 between Iran and the U.S. was still alive, while Pakistani Prime Minister Shehbaz Sharif affirmed ongoing efforts to de-escalate tensions. Trump said on Monday that Iran "wants to make a deal" nL6N40W11B.
ANZ analysts estimate L1N40W154 that about 10 million barrels per day of crude supply have been effectively removed from the market, adding that a prolonged U.S. blockade could curb an additional 3 million to 4 million bpd of crude shipments.
"The oil market no longer needs a worst-case escalation to justify higher pricing levels. Tight balances alone are sufficient to sustain the price of Brent near or above recent threshold levels," ANZ said in a client note.
NATO allies, including Britain and France, refrained nL8N40W0OM from joining the blockade, advocating instead for reopening the vital waterway.
U.S. Energy Secretary Chris Wright suggested nL1N40W11Y oil prices could peak in "the next few weeks" once shipping resumes through the Strait of Hormuz.
The International Monetary Fund, the World Bank, and the International Energy Agency urged countries nL1N40W0Y8 to avoid hoarding energy supplies or imposing export curbs amid what they described as the most significant shock ever to the global energy market.
IEA chief Fatih Birol said nL1N40W0TE on Monday that while further strategic oil releases might not yet be necessary, the agency remains prepared to act if needed.
Meanwhile, the Organization of the Petroleum Exporting Countries scaled back nL6N40W0P6 its second-quarter global demand forecast by 500,000 bpd in its latest monthly report.
(Reporting by Anmol Choubey in Bengaluru; Editing by Chris Reese and Sonali Paul)
