TOKYO: Oil prices retreated on Tuesday after the previous day's rally driven by halted production at Norway's Johan Sverdrup oilfield, but investors remained cautious amid fears of a potential escalation in the Russia-Ukraine war.

Brent crude futures for January delivery slipped 7 cents, or 0.1%, to $73.37 a barrel by 0119 GMT, while U.S. West Texas Intermediate crude futures for December delivery were at $69.23 a barrel, down 7 cents, or 0.1%. The more active WTI January contract fell 4 cents, or 0.1%, to $69.21.

Both benchmarks climbed more than $2 a barrel on Monday.

"Some position adjustments kicked in after Monday's rally," said Toshitaka Tazawa, an analyst at Fujitomi Securities.

"But investors stayed wary, assessing the direction of the Russia-Ukraine war after the weekend's escalation," he said.

Russia unleashed its largest airstrike on Ukraine in almost three months on Sunday, causing severe damage to the country's power system.

In a significant reversal of Washington's policy, President Joe Biden's administration allowed Ukraine to use U.S.-made weapons to strike deep into Russia, two U.S. officials and a source familiar with the decision said on Sunday.

The Kremlin said on Monday that Russia would respond to what it called a reckless decision by the Biden administration, having previously warned that such a decision would raise the risk of a confrontation with the U.S.-led NATO alliance.

Meanwhile, supply concerns persisted due to production issues at some oilfields.

Norway's Equinor halted output from its Johan Sverdrup oilfield, Western Europe's largest, due to an onshore power outage, the company said on Monday. Work to restart production was under way, an Equinor spokesperson said, but it was not immediately clear when it would resume.

Kazakhstan's biggest oil field Tengiz, operated by U.S. major Chevron, has reduced oil output by 28% to 30% due to ongoing repairs, helping to further tighten global supplies. Repairs were expected to be complete by Saturday, the country's energy ministry said.

Traders began shifting WTI trades to the January contract ahead of the expiration of the December contract on Wednesday.

WTI flipped to contango for the first time since February on Monday, with January delivery trading at a premium to the December contract in a sign that supply tightness was easing. (Reporting by Yuka Obayashi; Editing by Jacqueline Wong)