Oil prices extend losses as fears of Middle East supply disruptions ease

By Yuka Obayashi

TOKYO, Sept 17 (Reuters) - Oil prices fell in early trade on Thursday, extending the previous day's losses, as reports of Saudi Arabia offering extra crude cargoes through Oman reduced fears of supply disruptions in the Middle East.

Brent crude futures dropped $1.24, or 1.2%, to $104.59 a barrel by 0049 GMT, while U.S. West Texas Intermediate futures were down $1.14, or 1.1%, at $101.29. Both contracts fell about $3 on Wednesday.

"Concerns over supply tightness eased slightly following news that Saudi Arabia would ship cargo via Oman," said Hiroyuki Kikukawa, chief strategist of Nissan Securities Investment, a unit of Nissan Securities.

"Expectations of progress toward easing tensions in the Middle East ahead of U.S.-China summit next week are also capping price gains," he added.

Saudi Arabia is offering more loadings of crude oil to Asian refiners via ship-to-ship transfers off Oman's Sohar port, people familiar with the matter said, blunting some of the hit to global supply from attacks on the Saudi Arabia's East-West pipeline to the Red Sea.

Oil prices rose to about four-month highs earlier this week after shipping industry sources said crude loadings at Saudi Arabia's Red Sea export hub of Yanbu had been suspended and Riyadh had cancelled some cargo deliveries to European customers. The suspension followed attacks on the East-West pipeline, which feeds the Saudi port of Yanbu.

Yanbu became Saudi Arabia's main outlet for oil exports after Iran began blockading the Strait of Hormuz after the U.S. and Israel attacked the country at the end of February. Prior to the war, Hormuz was the conduit for one-fifth of the world's oil supply.

Two pumping stations serving the East-West pipeline were damaged in an attack last week, with a repair timeline unclear, according to assessments from three oil and security sources.

Despite the oil price decline on Thursday, worries about the intensifying Middle East war remain.

Saudi warplanes pounded Yemen and Houthi fighters launched drones and missiles at Saudi cities, the Iran-backed movement said on Wednesday, after a lightning advance that has extended Tehran's reach in the Middle East war.

Meanwhile, the U.S. Energy Information Administration on Wednesday reported a smaller-than-expected draw from U.S. crude inventories last week. Crude oil stocks in the top-producing nation fell about 640,000 barrels last week, the EIA data showed, compared to expectations of a 1.62 million-barrel draw according to a Reuters poll of energy analysts.