July 9 (Reuters) - Oil prices slid over 1% on Thursday as markets assessed the escalating conflict between the U.S. and Iran and its implications for efforts to end the war and fully reopen the Strait of Hormuz.
About 20% of global oil supplies passed through the strait before the Iran war.
Brent futures fell $1.12, or 1.4%, to $76.90 a barrel at 11:02 a.m. EDT (1502 GMT), while U.S. West Texas Intermediate crude fell $1.20, or 1.6%, to $72.32.
On Wednesday, Brent closed at its highest since June 19 and WTI closed at its highest since June 22.
Iranian armed forces launched attacks on U.S. military infrastructure in Gulf states on Thursday following U.S. strikes on Iran's southern coastal and eastern provinces, putting further strain on a three-week-old ceasefire agreement.
The attacks came on the day that Iran buried its slain Supreme Leader Ayatollah Ali Khamenei at the shrine of Mashhad, the culmination of a week of mass funeral processions and rallies. Khamenei was killed on the first day of the war on February 28.
Iran's Revolutionary Guards Navy said the U.S. attacks and intervention in redirecting shipping through the Strait of Hormuz were disrupting the waterway's gradual reopening.
"Our estimated oil flows from the Persian Gulf recovered to above 80% of pre-war flows within the first 10 days after Hormuz reopening as trapped tankers rushed to leave the Persian Gulf, but retreated to the low-70s% of normal following recent attacks on tankers," analysts at U.S. bank Goldman Sachs said in a report.
UKRAINIAN DRONES HIT RUSSIAN TANKERS
In Europe, Ukrainian drones hit a dozen more Russian tankers in the Sea of Azov overnight, Ukraine's military said on Thursday, the latest in a campaign aimed at disrupting fuel supplies to Russian forces and isolating Moscow-occupied Crimea.
On Wednesday, U.S. diesel futures posted their biggest daily percentage gain in four years after Russia announced a ban on exports of the industrial fuel, supercharging supply concerns in a market grappling with uncertainty about Middle Eastern oil flows.
Russia said on Thursday the United States was wrong to believe deep Ukrainian strikes into Russian territory could help bring about an end to more than four years of war, and warned that they could prolong it.
A settlement in the Ukraine war could result in the lifting of some sanctions on Russia, which could allow Moscow to export more oil. Russia was the world's third-biggest crude oil producer behind the U.S. and Saudi Arabia in 2025, according to U.S. energy data.
Elsewhere in Europe, the European Union plans to introduce a raft of policies and funding schemes to shift more of its economy to run on electricity, instead of oil and gas, a draft European Commission proposal seen by Reuters showed. If successful, the plan could reduce oil demand in Europe in the future.
U.S. JOBS AND INFLATION
In the U.S., the number of Americans filing claims for unemployment benefits fell last week, supporting economists' views that the labor market remained in a "slow-hire, slow-fire" mode, despite a sharp slowdown in job growth in June.
The minutes of the Federal Reserve's June 16-17 meeting showed policymakers' concerns about inflation mounted last month and they "generally expected labor market conditions to remain stable in the near term, with the unemployment rate staying close to current levels."
Federal Reserve Bank of New York President John Williams said on Thursday that despite the renewal of war in the Middle East, he was not looking for a sustained rise in energy prices over the remainder of the year.
Central banks like the Fed use interest rates to keep inflation in check. Higher interest rates boost costs for consumers and can reduce economic growth and demand for oil.
In China, the world's second-biggest economy behind the U.S., producer price inflation surged to its highest level in four years in June, piling pressure on manufacturers' profit margins as weak domestic demand limits their pricing power.
China and Taiwan, meanwhile, were bracing for possibly the most destructive tropical storm in years as Typhoon Bavi churned southeast of Taiwan on Thursday, with winds near 200 kph (124 mph), and as parts of China were still reeling from Typhoon Maysak.
(Reporting by Scott DiSavino in New York, Anushree Mukherjee in Bengaluru, Sam Li, Trixie Yap, Shariq Khan. Additional reporting by Stephanie Kelly. Editing by Barbara Lewis, Paul Simao, Mark Potter and Nia Williams)
