Updates prices, changes byline, adds dateline

By Arathy Somasekhar

HOUSTON, July 20 (Reuters) - Oil prices edged lower on Monday, pulling back and reversing course from earlier highs in choppy trading, as traders weighed hopes of renewed U.S.-Iran negotiations against Yemen's Houthis declaration of a naval blockade against Saudi Arabia.

Benchmark prices had earlier touched more than one-month highs on concern over disruption to 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.

Brent crude futures LCOc1 were down 19 cents, or around 0.2%, at $87.93 a barrel by 12:12 p.m. ET (1621 GMT) after hitting $91.42 for their highest since June 11.

U.S. West Texas Intermediate crude CLc1 was down 38 cents, or 0.5%, at $82.12 after touching its highest level since June 12 at $85.39.

Mediators have passed Iran a proposal to de-escalate the war with the U.S., suggesting a 10-day ceasefire to find ways to revive an interim deal reached last month, a senior Iranian official told Reuters on Monday.

Yemen's Iran-aligned Houthis said on Monday they were imposing a naval blockade on Saudi Arabia, a move that opens a new front against the United States in its war on Iran and widens the threat to global energy supplies and trade beyond the Gulf.

"The Houthi announcement of barring oil exports out of the Red Sea area will be watched closely by traders, and if that port of passage does get and or could stay blocked, global oil supplies could tighten very quickly," said Dennis Kissler, senior vice president of trading at BOK Financial.

DROP IN TANKER TRAFFIC FROM GULF

The collapse of a U.S.-Iran truce has reignited concerns over energy supplies moving through the Strait of Hormuz. 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.

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.

Greek shipping company Dynacom Tankers said two of its managed vessels were hit by projectiles of unknown origin on Monday while sailing off the coast of Oman.

Meanwhile, Iran's Revolutionary Guards said two oil tankers "exploded" and were immobilised after attempting to take what it called an unsafe southern route through the Strait of Hormuz. On Sunday, the Guards also pointed to two ships involved in an "accident" in the same area.

It was unclear if the two incidents were related or whether they were connected to attacks on the Dynacom vessels.

"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.

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 slowing as fighting escalates.

Oil transfers between tankers in waters outside the Strait of Hormuz have slowed following a wave of recent attacks on vessels by Iranian forces, according to satellite analysis and sources.