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Brent and WTI benchmarks up more than 2%

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War risk continues to underpin market

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IEA global oil supply forecast revised upwards

(Updates prices)

By Seher Dareen

LONDON, June 17 (Reuters) - Oil prices were driven

higher on Tuesday by the Iran-Israel conflict, though major oil

and gas infrastructure and flows have so far been spared from

substantial impact.

Brent crude futures gained $1.56, or 2.1%, to $74.79

a barrel by 1202 GMT. U.S. West Texas Intermediate crude

was up $1.42, or nearly 2%, at $73.19.

Both contracts rose more than 2% early in the session but

also retreated in volatile trade before bouncing back.

While there was no noticeable interruption to oil flows,

Iran partially suspended gas production at the South Pars field

that it shares with Qatar after an Israeli strike started a fire

there on Saturday. Israel also hit the Shahran oil depot in

Iran.

"The market is largely worried about disruption through (the

Strait of) Hormuz, but the risk of that is very low," said Saxo

Bank analyst Ole Hansen.

There is no appetite for closing the waterway, given that

Iran would lose revenue and the U.S. wants lower oil prices and

lower inflation, Hansen added.

Two oil tankers collided and caught fire on Tuesday near the

Strait of Hormuz, where electronic interference has surged,

highlighting the risks to companies moving oil and fuel supplies

in the region.

Despite the potential for disruption, there are signs oil

supplies remain ample amid expectations of lower demand.

In its monthly oil report on Tuesday, the International

Energy Agency revised its world oil demand estimate downwards by

20,000 barrels per day (bpd) from last month's forecast and

increased the supply estimate by 200,000 bpd to 1.8 million bpd.

Investors were also focused on central bank interest rate

decisions, PVM Associates analyst Tamas Varga said in a note,

with the U.S. Federal Open Market Committee set to discuss rates

later on Tuesday.