Oil drops from near six-month highs on hopes Iran war hostilities to ease

By Mohi Narayan and Colleen Howe

NEW DELHI, Oct 26 (Reuters) - Oil prices fell on Monday after surging last week to near six-month highs, amid hopes of easing hostilities between the United States and Iran, although persistent attacks on key producer Saudi Arabia kept investors wary.

US West Texas Intermediate crude futures were down $1.76, or 1.7%, at $101.51 per barrel by 0744 GMT. Brent crude futures were down $1.49, or 1.28%, at $115.23.

On Friday, prices settled nearly $3 higher after Houthi attacks in Saudi Arabia stoked energy supply concerns. Brent finished the week up 6% and WTI ended 2.3% higher.

On Sunday, Qatari mediators traveled to Tehran as part of an effort to de-escalate regional tensions in coordination with the United States, an official briefed on the situation said.

Also, top officials from Mecca Pact countries Saudi Arabia, Turkey and Pakistan are set to meet Iran's leaders in Tehran on Monday in their first high-level contact since attacks by the Iran-backed Houthis on Saudi Arabia became a pressure point in the wider conflict.

"Concerns over renewed military hostilities in the Middle East, which drove much of last week’s crude rally, have eased this morning, but the reprieve may prove temporary," said Vandana Hari, founder of oil market analysis provider Vanda Insights.

Hari said US President Donald Trump has not dispelled market expectations that strikes on Iran could still follow after the November 3 midterm elections.

"We therefore expect volatility to remain elevated, with risks still skewed to the upside," she added.

Despite the mediation talks, attacks continued over the weekend with the Houthis saying they had struck pumping stations on Saudi Arabia's East-West crude oil pipeline and Riyadh airport. Saudi Arabia said on Sunday it had intercepted more missiles and drones.

The effects of the US-Israeli war on Iran that began on February 28 continue to reverberate as companies adjust to the disruptions of commercial shipping through the key Strait of Hormuz and Bab el-Mandeb Strait caused by the conflict.

On Monday, the energy ministers from Saudi Arabia and Singapore said state-owned oil company Saudi Aramco will start storing crude oil in Singapore from the second half of 2027, to shore up the resilience of Aramco's supply chain in the region.

"While supply risks surrounding the Strait of Hormuz remain firmly entrenched, the current pullback appears more reflective of position adjustments and risk management rather than any meaningful improvement in the underlying supply situation," said Priyanka Sachdeva, head of market insight at Phillip Nova.

The head of the International Energy Agency, Fatih Birol, reinforced the concerns about the supply situation, saying on Monday at an industry event in Singapore that he does not expect energy markets in 2027 to return to where they were before the Iran war.

(Reporting by Mohi Narayan in New Delhi and Colleen Howe in Beijing; Editing by Lincoln Feast, Saad Sayeed and Christian Schmollinger)