By Mohi Narayan and Yuka Obayashi

NEW DELHI (Reuters) -Oil prices rose on Tuesday, recovering some of the previous day's losses, as investors remained nervous that the Israel-Hamas war could escalate into a wider conflict in the oil-exporting region, causing potential supply disruptions.

futures climbed 50 cents, or 0.5%, to $90.33 a barrel by 0650 GMT, while U.S. West Texas Intermediate crude futures increased 46 cents, or 0.5%, to $85.95 a barrel.

"The market is up on an adjustment after a drop in the past two sessions and on nagging fears of possible supply disruptions in the Middle East," said Yuki Takashima, economist at Nomura Securities.

Both benchmarks fell more than 2% on Monday as diplomatic efforts in the Middle East, the world's biggest oil-supplying region, intensified to contain the conflict between Israel and Hamas, easing investor worries about supply disruptions.

Hamas on Monday said it had freed two Israeli women who were among the more than 200 hostages taken during its Oct. 7 rampage in southern Israel, while sources said the U.S. had advised Israel to hold off on a ground assault in the Gaza Strip.

But Israel continued its bombardment of Gaza on Monday after launching air strikes over southern Lebanon overnight.

"The Israel-Hamas situation remains highly fluid and clearly, the market remains divided over whether the conflict will continue to ease from here as Hamas continue to release hostages, or flares up again," said Vandana Hari, founder of oil market analysis provider Vanda (NASDAQ:) Insights.

Israel pounded hundreds of targets in Gaza from the air on Monday as its soldiers fought Hamas militants during raids into the besieged Palestinian strip, where deaths are soaring and civilians are trapped in harrowing conditions.

"We expect WTI to move within the $80-$90 range for a while, with all eyes on the situation in Israel and Gaza, OPEC production and the pace of demand recovery in China," Takashima said, adding investors were also focusing on U.S. inventory data.

stockpiles were expected to have risen last week, while distillate and gasoline inventories fell, a preliminary Reuters poll showed on Monday.

The poll was conducted ahead of reports from the American Petroleum Institute industry group, due at 2030 GMT on Tuesday, and the Energy Information Administration, the statistical arm of the U.S. Department of Energy, due at 1430 GMT on Wednesday.