By Georgina McCartney
HOUSTON, Oct 27 (Reuters) - Oil futures fell by more than $2 a barrel on Tuesday as traders focused on Middle East peace talks, though prices remained near the highest in six months as the Houthi-Saudi Arabia conflict raged on and investors worried about the potential for more fighting in the US-Israeli war with Iran.
Brent crude futures were down $2.09, or 1.8%, at $113.72 a barrel by 1:44 p.m. EDT (1744 GMT). US West Texas Intermediate crude was down $1.93, or 1.9%, at $99.83.
Iranian Security Council chief Mohsen Rezaei met Supreme Leader Ayatollah Mojtaba Khamenei on Tuesday, a day after holding talks with representatives of Saudi Arabia, Turkey and Pakistan.
State media said Khamenei had emphasized the importance of pursuing Iran's interests and maintaining its conditions for ending the war.
The four countries agreed to continue talks with a view to strengthening cooperation in peace and security, Iranian state media said.
Scope for peace has been dented by renewed attacks by Yemen's Iran-aligned Houthis on key oil producer Saudi Arabia. The Houthis said on Tuesday that they had struck Saudi Arabia's Ras Tanura oil refinery, the biggest in the kingdom, with a ballistic missile.
"Continued Houthi attacks on Saudi Arabia and the expanding military presence in the Gulf are keeping supply risks in place, even as diplomatic headlines encourage some of the recent premium to unwind," said Gelber & Associates analysts in a note.
October has been the worst month for attacks on commercial shipping in the Strait of Hormuz and nearby waterways, according to data compiled by a Washington-based think tank that has tracked maritime security incidents worldwide since 2017.
Swiss bank UBS said it expects Brent prices to stay elevated near $110 a barrel through to the end of the year, citing volatile Middle East supply and geopolitical uncertainty. It was previously forecasting $100 a barrel at the end of this year.
Traffic through the Strait of Hormuz has risen but the number of vessel attacks has increased, with risks likely to become more acute if US naval support wavers, UBS said.
Brent prices surged to more than $117 a barrel last week, their highest since April, after a wave of Iranian attacks on tankers around the Strait of Hormuz. Brent touched $117 on Monday.
"The impression now is that there is a significant risk premium in crude oil prices for the risk that the US/Israel will attack Iran in the coming weeks," said SEB analyst Bjarne Schieldrop.
Investors were also looking for cues from a general election in Israel on Tuesday.
"The outcome of today’s parliamentary elections in Israel could also be significant for further developments in the war with Iran, as Israeli Prime Minister (Benjamin) Netanyahu, if re-elected, might attempt to achieve regime change in Iran," Commerzbank analysts wrote.
Elsewhere, crude oil exports from Russia's Baltic and Black Sea ports were forecast to fall next month as domestic refiners plan to increase their output after the end of maintenance and to produce more diesel to meet the demands of a deal struck this month between Washington and Moscow, two traders said.
Russian oil refineries increased crude processing by 25% in the second half of October compared to the beginning of the month after persistent drone attacks on the plants ceased, three industry sources told Reuters.
(Reporting by Georgina McCartney in Houston, Robert Harvey in London and Anjana Anil in BengaluruEditing by Joe Bavier, David Goodman and David Gregorio)
