By Georgina McCartney

HOUSTON (Reuters) -Oil prices settled lower on Wednesday as investors weighed a strong U.S. dollar against the potential that U.S. President-elect Donald Trump's foreign-policy plans could squeeze global oil supply.

Brent crude oil futures settled down 61 cents, or 0.81%, at $74.92 per barrel. U.S. West Texas Intermediate (WTI) crude settled down 30 cents or 0.42%, to $71.69.

Trump's election triggered a large sell-off that pushed oil prices down by more than $2 per barrel during early trade as the U.S. dollar rallied, currently at its highest level since September 2022.

A stronger dollar makes greenback-denominated commodities such as oil more expensive for holders of other currencies and tends to weigh on prices.

"All the excitement and initial selling enthusiasm has since waned, and I think there is more upside rather than downside in the short term," said Phil Flynn, senior analyst at Price Futures Group, noting that investors on Wednesday looked more at the short-term supply, demand outlook.

"There was an over-reaction to the election results, and that a Trump victory could have caused the U.S. industry to sort of drill itself into oblivion and cause a glut," said John Kilduff, partner at Again Capital in New York.

"But cooler heads have prevailed and this market has a lot of problems on its hands," he added, citing the war in the Middle East as a supportive factor because it could weigh on supply.

Trump's reelection could also mean the renewal of sanctions on Iran and Venezuela, removing barrels from the market, which would be bullish, UBS analyst Giovanni Staunovo said.

Iran is an OPEC member with production of around 3.2 million barrels per day, or 3% of global output.

However, a crackdown on Iran may be more difficult as the country has become adept at evading sanctions, Alex Hodes, oil analyst at brokerage firm StoneX, said in a note.

Trump's support for Israeli Prime Minister Benjamin Netanyahu could heighten instability in the Middle East, according to Andrew Lipow, president of Lipow Oil Associates.

That could boost oil prices as investors price in a potential disruption to global oil supplies. Trump is expected to continue arming Israel.

But setting aside the U.S. election and geopolitical uncertainties, persistent trends in oil markets are likely to shape the outlook ahead, Mukesh Sahdev, global head of commodity markets, oil at Rystad Energy, said in a note.

OPEC+ still pulls the strings, refinery margins battle weaker demand, and higher supply and oil trade flows continue to battle inefficiencies, according to Sahdev.