Oil slips 1% as Iran diplomacy eases supply fears

By Sethuraman N R

NEW DELHI, Oct 27 (Reuters) - Oil prices edged lower on Tuesday, falling about 1% as prospects for a resolution of the US-Israeli war on Iran kept supply fears at bay with talks in Tehran, despite renewed Houthi attacks on Saudi Arabia.

Brent crude futures were down $1, or 0.86%, at $114.81 a barrel by 0418 GMT, while US West Texas Intermediate crude was down 88 cents, or 0.86%, at $100.88. Both fell 1% early in the session.

Saudi Arabia, Turkey and Pakistan held talks with Iranian officials in Tehran on Monday aimed at easing tension in the Middle East.

The four countries agreed to continue talks with a view to strengthening cooperation in peace and security, Iranian state media said.

"Crude oil prices are witnessing profit-taking after surging to multi-month highs, as renewed diplomatic efforts in West Asia have raised hopes of a potential breakthrough in negotiations between the US and Iran," said Sugandha Sachdeva, founder of SS WealthStreet, a New Delhi-based research firm.

Last week, Brent prices surged to more than $117 a barrel, the highest since April, after a wave of Iranian attacks on tankers around the Strait of Hormuz. Brent prices touched $117 on Monday as well.

"Prices remain elevated amid persistent geopolitical uncertainties," Sachdeva said.

Scope for peace looked fragile, however, with renewed attacks by Iran-aligned Houthis on key producer Saudi Arabia.

October has been the worst month for attacks on commercial shipping in the Strait of Hormuz and nearby waterways, data from a Washington-based think tank shows, among worldwide maritime security incidents it has tracked since 2017.

The war rippling across the Middle East placed the Strait of Hormuz at the center of the turmoil. The narrow waterway carried around a fifth of the world's energy supplies before the conflict erupted in February.

The oil market is vulnerable, with stress across areas such as supply, logistics, inventories and refining, ANZ Research said in a note.

Gulf crude exports fell for a fourth straight week and flows through the Strait of Hormuz were just about 60% of their normal level, while global distillate inventories held nearly 5% below their five-year average, it added.