By Nicole Jao
NEW YORK, Aug 5 (Reuters) - Oil prices edged lower on Wednesday on revived expectations of a de-escalation in Iran war hostilities that could restore shipping traffic in the Strait of Hormuz and oil flows in the Middle East.
However, losses were capped by a maritime embargo declared by Yemen's Iran-aligned Houthis on Saudi ports and vessels, heightening risks to Red Sea shipping.
Brent crude futures were down 60 cents, or 0.76%, at $78.76 a barrel by 1:30 p.m. ET (1730 GMT). U.S. West
Texas Intermediate futures fell $1.19, or 1.57%, to $74.58.
U.S. President Donald Trump said there was an "all-day negotiation" on Tuesday with Iran, characterizing the talks positively while also threatening to hit Iran "really hard" if a deal with Tehran was not reached.
Tehran denied that peace talks were under way. Its foreign ministry said on Wednesday that Iran and Oman have reached an understanding on how to manage the Strait of Hormuz, and a joint announcement is being finalised.
Before the war started at the end of February, about 20% of the world's oil and liquefied natural gas passed through the Strait of Hormuz.
"There still is some scepticism in the market about who is negotiating with whom and what the agreement may ultimately mean for shipping," said Andrew Lipow, president of Lipow Oil Associates.
Reports of progress in efforts to end the war drove prices down 5% on Tuesday, with Brent closing below $80 a barrel for the first time since July 13.
"The main sticking point appears to be whether Iran will continue to insist on a degree of control over the waterway, and whether the U.S. will stand its ground and refuse that outcome," IG analysts said in a note.
A build in U.S. crude inventories as refineries eased their processing slightly pressured prices, as did a slight rise in imports.
Crude stockpiles rose by 2.5 million barrels to 407 million barrels last week, data from the Energy Information Administration showed on Wednesday. Analysts had expected a 1.5-million-barrel draw.
The losses were limited by shipping risks in the Red Sea after Yemen's Iran-aligned Houthi rebels said on Wednesday they had attacked a Saudi oil tanker off Yanbu, a port for Saudi crude oil exports on the Red Sea.
Apart from disruption in the Gulf, a surge in attacks on Russian and Ukrainian ships, ports and export terminals in the Black Sea is disrupting global commodity supplies.
Disruption has spread to the Caspian Pipeline Consortium, the main export route for Kazakh crude oil, which has repeatedly suspended operations this week because of safety concerns and a lack of tankers, numerous trading sources said.
Elsewhere, China further relaxed controls on fuel exports in August.
(Reporting by Nicole Jao in New York and Robert Harvey in London, Helen Clark in Perth and Jeslyn Lerh in Singapore; Editing by David Goodman, Deepa Babington and Barbara Lewis)
