Brent falls to $86 as traders unfazed by Mideast conflict

By Natalie Grover and Deep Kaushik Vakil

LONDON (Reuters) -Global oil benchmark Brent slipped on Monday to around $86 a barrel as traders turned their focus to inflation, with tensions in the Middle East having so far left actual supplies unperturbed.

Brent futures were down $1.13, or 1.3%, to $86.16 a barrel by 1335 GMT.

The front-month U.S. West Texas Intermediate (WTI) crude contract for May, which expires on Monday, fell 84 cents, or 1%, to $82.30 in thin trade. The more active June contract dipped $1.18 to $81.04.

Both benchmarks spiked more than $3 a barrel early on Friday, after explosions were heard in the Iranian city of Isfahan in what sources described as an Israeli attack.

Gains dissipated after Tehran played down the incident and said it did not plan to retaliate.

Geopolitical risk premiums tend not to last if supply is not actually disrupted, said UBS strategist Giovanni Staunovo, adding that the high spare capacity of a few oil-producing countries could compensate for any supply disruptions.

The market reaction to the rising geopolitical temperature was another example that it is only reasonable to expect a protracted oil rally if the Strait of Hormuz- the world's most important oil artery - was disrupted or Saudi Arabia directly drawn into the conflict, noted Tamas Varga of oil broker PVM.

Meanwhile, plentiful supplies of some of the biggest crude grades are limiting the impact on oil futures of conflict in the Middle East, a Reuters analysis found.

On the economic front, inflation is back in focus, with comments from Federal Reserve officials and a run of hotter-than-expected inflation data forcing a paring back of rate cut expectations last week.

Economic concerns have again become a bearish factor of the crude market, with prices under pressure due to a large build in the U.S. stockpile and a hawkish Fed that has led to a strong dollar, said independent market analyst Tina Teng. [EIA/S]

A strong dollar makes oil more expensive for holders of other currencies. [USD/]

(Reporting by Deep Vakil in Bengaluru, Natalie Grover in London, Colleen Howe in Beijing and Jeslyn Lerh in Singapore; Editing by Louise Heavens, Alex Lawler and Bernadette Baum)