By Rowena Edwards

LONDON (Reuters) -Oil prices fell on Wednesday, retreating from seven-year highs hit the previous day as it became clear that the first wave of U.S. and European sanctions on Russia were unlikely to disrupt oil supplies.

Brent crude was down 59 cents, or 0.6%, to $96.25 a barrel at 1027 GMT, after hitting $99.50 on Tuesday, the highest since September 2014.

U.S. West Texas Intermediate (WTI) crude futures fell 76 cents, or 0.8%, to $91.15 a barrel, after reaching $96 on Tuesday.

Prices jumped on Tuesday on worries that Western sanctions on Russia for sending troops into two breakaway regions in eastern Ukraine could hit energy supplies.

Sanctions imposed by the United States, the European Union, Britain, Australia, Canada and Japan were focused on Russian banks and elites while Germany halted a major gas pipeline project from Russia. But the United States made it clear that sanctions agreed and those which may be imposed will not target oil and gas flows.

However, analysts expect oil prices to continue seeing a level of support from the Russia-Ukraine crisis for the time being, with some Western countries promising to impose more sanctions if Russia launches a full invasion of its neighbour.

“The prospect of more conflict in Ukraine should safeguard the geopolitical risk premium,” said Stephen Brennock at brokerage PVM Oil.

“There is a risk that Russia will retaliate to the sanctions by reducing deliveries of its own accord,” Commerzbank analyst Carsten Fritsch said.

The potential return of more Iranian crude to the market further pressured oil prices on Wednesday, as Tehran and world powers inch closer to reviving a nuclear agreement.

“Nuclear talks in Vienna are reaching a sensitive and important point,” Iran’s foreign minister Hossein Amirabdollahian said on Wednesday.

(Additional by Sonali Paul and Mohi Narayan in New Delhi; Editing by Emelia Sithole-Matarise)