Wires

UPDATE 7-Oil falls 1% as investors reassess Mideast risks

Stephanie Kelly

* Iran more likely to focus on U.S. military targets -Eurasia

* December OPEC output fell by 50,000 bpd -survey

* U.S. crude stocks likely to have dropped for 4th week -poll (Updates prices, market activity, adds commentary; changes byline, dateline, previous LONDON)

NEW YORK, Jan 7 (Reuters) - Oil prices fell about 1% on Tuesday, surrendering some of the gains of recent days as investors reconsidered the likelihood of immediate supply disruptions in the Middle East after the United States killed a top Iranian military commander last week.

Brent crude was down 71 cents, or 1%, at $68.20 a barrel. U.S. West Texas Intermediate (WTI) crude fell 67 cents, or 1.1%, to $62.60 a barrel.

Prices surged during the previous two sessions, with Brent reaching its highest since September while WTI rose to its strongest since April.

The gains were on fears of escalating conflict and potential Middle East supply disruptions after the Jan. 3 Baghdad drone strike that killed Qassem Soleimani, head of Iran's elite Quds Force. Iran has vowed strong revenge.

"The expansion in geo-risk premium related to Iran appears to be running out of steam as the complex seems to be taking a 'wait and see' attitude ahead of possible Iranian retaliation to last week's events," Jim Ritterbusch, president of trading advisory firm Ritterbusch and Associates, said in a note.

Consultancy Eurasia Group said that Iran is likely to focus more narrowly on U.S. military targets rather than energy targets.

"That's not to say it won't continue low-level harassment of commercial shipping or regional energy infrastructure, but these activities will not be severe," it added.

Julius Baer analyst Carsten Menke said the Iranian regime was "quite rational and strategic."

"The costs of direct military confrontation are prohibitive, and disrupting oil flows would alienate loose allies such as China and India," he said.

"The closure of the Strait of Hormuz, a key choke point of global oil flows, remains a very unlikely event."

However, the United States Maritime Administration website renewed its warning about threats to U.S. commercial vessels from Iran and its proxies in the Gulf and surrounding area.

Prices also fell despite higher compliance among the Organization of the Petroleum Exporting Countries (OPEC) on meeting production quota curbs aimed at reducing supply.

OPEC members pumped 29.5 million barrels per day (bpd) last month, down 50,000 bpd from November's revised figure, according to a Reuters survey published on Monday.

U.S. crude oil stockpiles likely fell for the fourth straight week last week, though refined products stocks were expected to have risen, a Reuters poll showed on Monday ahead of weekly data.

The average estimate by six analysts was for crude stocks to have fallen by 4.1 million barrels in the week to Jan 3. (Additional reporting by Bozorgmehr Sharafedin and Alex Lawler in London and Florence Tan in Singapore; Editing by Marguerita Choy and David Goodman)