Updates prices and adds detail and background from paragraph 5

By Anushree Mukherjee

July 20 (Reuters) - Oil prices reversed early gains on Monday after Iran's foreign ministry said negotiations with the U.S. could be pursued based on national interests.

Benchmark prices had earlier touched more than one-month highs on concern over disruption to shipments through the Strait of Hormuz.

Brent crude futures LCOc1 were down 16 cents, or 0.18%, at $87.94 a barrel by 0922 GMT after hitting $91.42 for their highest since June 11.

U.S. West Texas Intermediate crude CLc1 was down 68 cents, or 0.82%, at $81.81 after touching its loftiest level since June 12 at $85.39.

Intermediaries have shared messages with Tehran over recent days, Iran's foreign ministry spokesperson Esmaeil Baghaei said on Monday without specifying what the proposals entailed.

"Comments from Iran’s foreign ministry spokesperson saying that the country has received new proposals from mediators have seen oil prices giving up all earlier gains, though flows through the Strait of Hormuz remain depressed," said UBS analyst Giovanni Staunovo.

DROP IN TANKER TRAFFIC FROM GULF

Prices had earlier extended last week's hefty gains, driven by recent hostilities between the U.S. and Iran that have restricted oil shipments through the Strait of Hormuz.

The Middle East conflict escalated over the weekend, with the U.S. conducting a ninth straight night of attacks against Iran while U.S. allies Kuwait and Bahrain reported more Iranian strikes.

The Islamic Revolutionary Guard Corps said on Monday that two oil tankers had been immobilised after explosions as they attempted to transit what it described as an unsafe southern route through the Strait of Hormuz, alleging they had been encouraged by the U.S. military to use that passage.

Reuters was unable to obtain immediate verification of events.

"The supply narrative has become more bearish. The anticipated recovery in shipping has effectively stalled, with Strait of Hormuz transit volumes falling to single digits," ANZ analysts said in a note.

Four vessels made the transit through the Strait of Hormuz on Sunday, down from eight the previous day, LSEG data showed. At least three oil products tankers and one very large crude carrier have entered the strait since Friday to load oil, the data showed.

A vessel was on fire northwest of Oman's Kumzar, the United Kingdom Maritime Trade Operations centre said early on Monday.

Gulf countries boosted crude oil and condensate exports in the first half of July to their highest since before the Iran war began in late February, shipping data showed, though flows through the Strait of Hormuz are now slowing as fighting escalates.

The collapse of a U.S.-Iran truce has reignited concerns over energy supplies moving through the strait. Before the Iran war, about 20% of global oil supplies flowed through the waterway. Iran has also pressed the Houthis to close the Red Sea route if the U.S. attacks Iranian power infrastructure.