By Georgina McCartney
HOUSTON, Aug 26 (Reuters) - Oil prices settled lower after a choppy session on Wednesday, as investors monitored talks between Iran and Oman on the Strait of Hormuz and a smaller-than-expected rise in U.S. crude stocks.
Brent crude futures settled down 74 cents, or 0.84%, to $87.84 a barrel. West Texas Intermediate crude futures settled down 13 cents, or 0.16%, at $82.23.
During the session, both benchmarks fell to their lowest levels since August 10 on hopes of an increase in traffic
through the strait. They pared losses after official oil stock data showed U.S. crude inventories rose by less than expected last week. [EIA/S]
Crude inventories increased by 95,000 barrels to 428.9 million barrels in the week ended August 21, the Energy Information Administration said, compared with analysts' expectations in a Reuters poll for a 597,000-barrel rise.
IRAN AND OMAN WORK ON DETAILS
Analysts said the talks between Iran and Oman had shifted the mood in the market.
"The market has moved from pricing a high probability of prolonged disruption and renewed escalation towards pricing partial reopening, negotiated shipping arrangements and a lower risk of renewed military confrontation," said Saxo Bank head of commodity strategy Ole Hansen.
"A credible agreement that rapidly restores Hormuz traffic could remove another layer of geopolitical premium."
Iran and Oman are working on the details of the agreement on the strait, a senior Iranian source said on Wednesday, after Iran's Revolutionary Guards said the two countries had agreed how to share the waterway and its revenues.
Until U.S.-Israeli airstrikes began a war on Iran at the end of February, the Strait of Hormuz was the route for around a fifth of global oil and gas supplies.
Only five commodity vessels transited the waterway on Tuesday, preliminary data from ship tracker Kpler showed, down from the 10-day average of 15 and well below pre-war levels.
Efforts to reach a broader settlement to the Iran conflict are also continuing. Pakistan and Iran made "significant progress" in talks, Pakistan's interior minister said on Tuesday at the end of a visit to Tehran.
On Thursday, Qatari Prime Minister Sheikh Mohammed bin Abdulrahman al-Thani will visit Tehran, to meet Iranian officials to discuss ways to de-escalate tensions, foreign ministry spokesperson Majed Al Ansari said on Wednesday on X.
Energy supply disruption linked to Russia's war on Ukraine showed no sign of easing.
Russia's fourth-largest oil refinery and second-largest gasoline producer NORSI suspended crude oil processing on Wednesday after a Ukrainian drone attack, three industry sources said.
Russia is considering stepping up ballistic missile strikes on Kyiv, including targets in the city center, and on infrastructure elsewhere in Ukraine after concluding that efforts to negotiate a peace deal have reached a dead end, Bloomberg News reported on Wednesday, citing three people close to the Kremlin.
A U.S. senator sponsoring a bill for wide-ranging sanctions on Russia said on Wednesday he was hopeful it would pass the House of Representatives next month, and be a "sledgehammer" to President Vladimir Putin's efforts to fund his war in Ukraine.
(Reporting by Georgina McCartney in Houston, Anushree Mukherjee in Bengaluru, Enes Tunagur in London, Yuka Obayashi in Tokyo and Siyi Liu in Singapore. Editing by Elaine Hardcastle, Mark Potter, Barbara Lewis and David Gregorio)
