Oil prices ease as market assesses Middle East tension

Oil prices eased on Thursday, reversing gains made earlier in the Asian trading session, as market participants assessed a U.S. decision to move personnel from the Middle East ahead of talks with Iran over the latter's nuclear-related activity.

Brent crude futures were down 73 cents, or 1.1%, to $69.04 a barrel at 0901 GMT, while U.S. West Texas Intermediate crude was 66 cents, or 1%, lower at $67.49 a barrel.

A day earlier, both Brent and WTI surged more than 4% to their highest since early April.

U.S. President Donald Trump said the U.S. was moving personnel because the Middle East "could be a dangerous place". He also said the U.S. would not allow Iran to have a nuclear weapon. Iran has said its nuclear activity is peaceful.

Increased tension with Iran has raised the prospect of disruption to oil supplies. The sides are set to meet on Sunday.

"For the oil market, the absolute nightmare is a closure of the Strait of Hormuz," Global Risk Management analyst Arne Rasmussen said in a LinkedIn post.

"If Iran blocks this narrow chokepoint, it could affect up to 20% of global oil flows," he added.

On Wednesday, Britain's maritime agency warned that increased tensions in the region may lead to an escalation in military activity that could impact shipping in critical waterways.

It advised vessels to use caution while travelling through the Gulf, the Gulf of Oman and the Straits of Hormuz, which all border Iran.

The U.S., meanwhile, is preparing a partial evacuation of its Iraqi embassy and will allow military dependents to leave locations in the Middle East due to heightened security risk in the region, Reuters reported on Wednesday citing U.S. and Iraqi sources.

Iraq is the second-biggest crude producer after Saudi Arabia in the Organization of the Petroleum Exporting Countries.

Military dependents can also leave Bahrain, a U.S. official said.

Prices weakened having hit key technical resistance levels during Wednesday's rally, plus some market participants are betting on Sunday's U.S.-Iran meeting resulting in reduced tension, said OANDA senior market analyst Kelvin Wong.

Trump has repeatedly said the U.S. would bomb Iran if the two countries cannot reach a deal regarding Iran's nuclear-related activity including uranium enrichment.

Iran's Minister of Defense Aziz Nasirzadeh on Wednesday said Iran will strike U.S. bases in the region if talks fail and if the U.S. initiates conflict. 

U.S. Special Envoy Steve Witkoff plans to meet Iranian Foreign Minister Abbas Araghchi in Oman on Sunday to discuss Iran's response to a U.S. proposal for a deal.

The U.N. nuclear watchdog's 35-nation Board of Governors declared Iran in breach of its non-proliferation obligations on Thursday for the first time in almost 20 years, raising the prospect of reporting it to the U.N. Security Council.

(Additional reporting by Emily Chow in Singapore; Editing by Sonali Paul, Christopher Cushing and Sharon Singleton)