Oil up 2% as Iran official says country will keep enriched nuclear material

By Nicole Jao

NEW YORK, Nov 11 (Reuters) - Oil prices rose about 2% on Wednesday after Iran's security chief said Tehran would not allow any enriched nuclear material to leave the country, feeding supply worries that lifted prices off two-month lows hit the previous session.

Washington has said nuclear issues must be part of any initial negotiations with Tehran aimed at ending the US-Israeli war on Iran.

Brent futures were up $2.15, or 2.35%, at $93.64 a barrel by 12:04 p.m. EST (1704 GMT). US West Texas Intermediate crude gained $1.69, or 1.96%, to $87.73.

In the previous session, oil prices initially fell by more than $3 a barrel after US officials played down the need for further military strikes against Iran. Prices later pared some losses after an Iranian security official said no talks were taking place between the two sides.

"Oil prices are being supported by fading hopes of an imminent de-escalation," UBS analyst Giovanni Staunovo said.

While OPEC+ crude oil production jumped in October, led by a sharp increase in output from Saudi Arabia, there is little sign of easing disruption in the Strait of Hormuz. Data from the Washington Institute for Near East Policy showed that 37 ships were attacked in October, the highest monthly total since the start of the war.

"This demonstrates that operational risks have not disappeared simply because diplomatic signals have turned more positive," said Simon-Peter Massabni, head of business development at XS.com. "More importantly, even if a political agreement is reached, shipping activity is unlikely to return to normal immediately."

Brent and WTI prices have fallen about 21% and 17%, respectively, since the start of the month on hopes of an end to the war.

A tanker was struck northeast of Lima in Oman, the United Kingdom Maritime Trade Operations agency said on Tuesday. Iran's Revolutionary Guards Navy said separately on Tuesday that two tankers caught fire after hitting naval mines on an "unauthorized route" in the strait.

"Even in the event a deal is struck, an increase in flows through the waterway would depend on mine clearance, insurance costs and whether or not shipowners would even be willing to take the risk," LSEG Oil Research said in a November 10 note.

US crude stocks rose by 9 million barrels in the latest week, market sources said, citing data from the American Petroleum Institute. Official data is due on Thursday, delayed a day due to the US Veterans Day holiday on Wednesday.

Data from Kpler shows that Middle East crude and condensate outages have dropped to about 3.8 million barrels per day, with Saudi and Iraqi crude output back to pre-war levels and outages in both countries down significantly.

Separately, Vladimir Medinsky, Russia's chief negotiator on Ukraine, said on Wednesday that a peace settlement seemed to be closer after two days of talks in Abu Dhabi.

A regional governor said a drone attack caused a fire in the port area of Ust-Luga on Russia's Baltic coast, injuring three workers.

Russian oil refining capacity has been reduced by about 30% since late October following renewed Ukrainian drone attacks, industry sources said.

(Reporting by Nicole Jao in New York, Stephanie Kelly in London and Jeslyn Lerh in Singapore; Additional reporting by Colleen Howe in Beijing; Editing by Thomas Derpinghaus, Mark Potter, Sharon Singleton and David Gregorio)