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UPDATE 10-Oil settles higher, posts weekly gain as weak dollar underpins

* Brent settles above $70

* U.S. crude net longs rise to another record -CFTC

* Brent crude speculators boost net long positions to record

* U.S. oil rig count rises by 12 this week -Baker Hughes (New throughout, updates prices, market activity and analyst comments to settlement, adds CFTC and ICE contract data)

HOUSTON, Jan 26 (Reuters) - Oil prices settled higher on Friday after hitting three-year highs, with crude also posting a weekly gain as a weaker U.S. dollar underpinned prices.

Brent crude futures settled up 10 cents, or 0.1 percent, at $70.52 per barrel after hitting a session high of $70.83. On Thursday, the contract climbed to as high as $71.28, its highest since 2014.

U.S. West Texas Intermediate (WTI) crude futures closed at $66.14 a barrel, up 63 cents, or nearly 1 percent. On Thursday, they also reached their highest since December 2014, at $66.66.

Brent posted a nearly 2.7 percent weekly gain, while WTI reached a weekly gain of 4.3 percent.

"Technically, crude is a little overbought but it's not causing a huge sell-off right now," said Mike Sabo, senior market strategist at RJO Futures in Chicago.

Both contracts strengthened after support from a weakening dollar, which hit three-year lows against a basket of currencies .

As oil is priced in dollars, a weaker greenback can boost oil demand, making prices less expensive for buyers using other currencies.

"The dip in the dollar raises our expectations for Brent to remain at $70 for a little while longer," said Bill O'Grady, chief market strategist at Confluence Investment Management in St. Louis, Missouri.

On the supply side, U.S. oil production <C-OUT-T-EIA> was expected to soon hit 10 million barrels per day (bpd), putting it on a par with top exporter Saudi Arabia.

U.S. oil drillers added 12 rigs this week, the biggest weekly increase since March, General Electric Co's Baker Hughes energy services firm said in its closely followed report on Friday. <RIG-OL-USA-BHI>

Meanwhile, hedge funds have been increasing long positions steadily on expectations that tightening supply will keep prices buoyant. Money managers raised their net long U.S. crude futures and options positions in New York and London by 7,612 contracts to 549,602 in the week to Jan. 23, a new record high, the U.S. Commodity Futures Trading Commission (CFTC) said.

In a separate report, Intercontinental Exchange Inc said speculators raised positions in Brent in the week to Jan. 23 from a record the week before by 13,912 contracts to 584,707, roughly equal to about 584.7 million barrels of oil.

(Additional reporting by Libby George in London and Henning Gloystein in Singapore; Editing by Marguerita Choy and David Gregorio)