July 9 (Reuters) - Oil prices fell on Thursday as markets assessed the impact of U.S. strikes on Iran that could hinder progress on talks to end their war and allow the full reopening of the Strait of Hormuz shipping channel.
Brent crude futures fell 16 cents, or 0.21%, to $77.86 a barrel by 0938 GMT. U.S. West Texas Intermediate crude futures lost 15 cents, or 0.20%, at $73.37 a barrel.
Brent and WTI crude futures hit their highest levels since June 22 on Wednesday.
Both crude benchmarks rose more than a dollar in post-settlement trade on Wednesday after the U.S. military began launching strikes on Iran, which responded with attacks on Kuwait and Bahrain.
"Traders are now reassessing the situation, especially as things are very much up in the air regarding oil flows through the Strait of Hormuz," said Tim Waterer, chief market analyst at KCM Trade.
"The possibility that the next move could be de-escalatory is what’s currently preventing oil from pushing meaningfully higher."
Some war underwriters have advised shipping companies to pause voyages through the Strait of Hormuz while others are reviewing their policy terms after renewed vessel attacks threatened a return to war, insurance industry sources said on Wednesday.
Before the latest flare-up in the U.S.-Israeli war on Iran, prices had been falling as the market tried to absorb the pent-up Middle Eastern supply released by a fragile truce and some signs of rising inventories.
A fifth of global oil and liquefied natural gas supplies traversed the Strait of Hormuz prior to the Iran war, which began at the end of February.
Tehran's control of the waterway has been its main leverage in the conflict.
Goldman Sachs said risks to Gulf oil flows and near-term prices remain two-sided. It expects flows to normalise by the end of July if negotiations continue, sanctions waivers on Iranian oil are reinstated and shippers receive security assurances. That scenario would require Hormuz flows to increase by 6.6 million barrels per day.
Conversely, the bank said failed talks, escalating tanker attacks and a potential U.S. blockade of Iranian oil could further disrupt flows.
"In the base case Brent probably trades in a $75–85 range over the next month, with a mild upward bias," said Aneeka Gupta, director of macroeconomic research at WisdomTree.
"The underlying supply recovery is real but incomplete, the surplus narrative is discredited for now, and diplomatic engagement (while stalled) hasn't collapsed entirely."
Elsewhere, Russia banned diesel exports on Wednesday to support its domestic fuel market after Ukrainian drone attacks on refineries caused fuel shortages and price spikes.
Reporting by Anushree Mukherjee in Bengaluru, Sam Li, Trixie Yap, Shariq Khan; Editing by Christian Schmollinger, Lincoln Feast and Barbara Lewis
