Oil steadied on Tuesday as investors considered the potential impact on oil supply from attacks by Yemen's Iran-aligned Houthi militants against ships in the Red Sea, which have disrupted maritime trade and forced companies to reroute vessels.
Crude prices had climbed nearly 2% on Monday on fears over the disruptions to trade via the Suez Canal, the shortest shipping route between Europe and Asia, which accounts for about 15% of global shipping traffic.
Brent crude fell 12 cents to $77.83 a barrel by 0914 GMT. U.S. West Texas Intermediate crude for January , which expires on Tuesday, was down 62 cents at $71.85 while the more active February contract lost only 3 cents.
Though the attacks on shipping have boosted the geopolitical risk premium, "the actual effect on oil flows is likely to be limited", said John Evans of oil broker PVM.
"The attacks have not hit anything that would interfere with production," he said.
Goldman Sachs analysts said the disruption is unlikely to have a large effect on crude and liquefied natural gas (LNG) prices because opportunities to reroute vessels suggest that production should not be directly affected.
Oil major BP (BP.L) has temporarily halted transit through the Red Sea and oil tanker group Frontline (FRO.OL) on Monday said its vessels would avoid the route - signs that the crisis was broadening to include energy shipments.
The shipping attacks have prompted the United States and its allies to discuss a task force that would protect Red Sea routes in a move that Israeli and U.S. arch-foe Iran has warned would be a mistake.
Also in focus this week will be the latest snapshot of U.S. supplies. U.S. crude inventories are expected to decline by 2.2 million barrels.
