- Brent and U.S. crude rise, putting futures on pace to snap several weeks of declines.
- Crude futures draw support from signs that U.S. sanctions on Iran are already reducing global crude supply.
- The market remains cautious after U.S.-China talks aimed at resolving a trade dispute ended Thursday with no breakthrough.
Oil prices rose on Friday, but pared gains ahead of the close, as the market remained on edge about potential oversupply despite signs that Iran sanctions could curb output.
"In the near term we're still fairly well supplied," said John Kilduff, a partner at Again Capital Management.
U.S. West Texas Intermediate crude rose 89 cents, or 1.3 percent, to $68.72. For the week, WTI gained 4.3 percent, snapping a seven-week losing streak.
Benchmark Brent crude oil was up $1.02, or 1.4 percent, at $75.75 a barrel by 2:24 p.m. ET. Brent was on track for a gain of more than 5 percent this week, following three consecutive weekly losses.
"Both crude markers are on track to end a steady run of weekly declines. This is largely due to a tightening fundamental outlook on the back of looming Iranian supply shortages," said Stephen Brennock, analyst at London brokerage PVM Oil Associates.
Concerns that an escalating trade war between China and the U.S. could slow economic growth and weigh on crude purchases eased slightly after sources told Reuters that China's Unipec will resume purchases of U.S. crude oil in October, after a two-month halt due to the fight.
Worries that Mexico's incoming administration would not strike a bilateral agreement over NAFTA with the U.S. also weighed on the market, traders said. A dispute over opening up the oil and gas sector is weighing on the talks, Bloomberg reported, citing two people familiar with negotiations.
At the same time, concerns about global crude supply intensified with signs that U.S. sanctions on Iran are curbing shipments.
The U.S. government re-imposed sanctions on Iran this month after withdrawing from a 2015 international nuclear deal, which Washington saw as inadequate for curbing Tehran's activities in the Middle East and denying it the means to make an atomic bomb. Tehran says it has no ambitions to make such a bomb.
Iran is the third-biggest producer in the Organization of the Petroleum Exporting Countries, supplying around 2.5 million barrels per day (bpd) of crude and condensate to markets this year, equivalent to around 2.5 percent of global consumption.
"Third-party reports indicate that Iranian tanker loadings are already down by around 700,000 bpd in the first half of August relative to July, which if it holds will exceed most expectations," U.S. investment bank Jefferies said on Friday.
"We expect that by Q4 the market will be dealing with either undersupply, dwindling spare capacity - or both," it added.
Energy consultancy FGE says it expects Iran's crude and condensate exports to drop below 1 million bpd by mid-2019.
The dollar index served as a tailwind, said Bob Yawger, director of futures at Mizuho in New York. A key index of the dollar versus a basket of other currencies fell on Friday, boosting the price of oil and other dollar denominated commodities.
The dollar fell after Federal Reserve Chair Jerome Powell said steady rate hikes are the best way to protect the U.S. economic recovery.
U.S. energy companies cut nine oil drilling rigs this week, the biggest reduction since May 2016, General Electric Co's Baker Hughes energy services firm said. Changes in the rig count serves as an indicator of future production trends.
Traders kept an eye on the North Sea, where workers on three oil and gas platforms plan to strike next month. Oil production will stop during the strikes. The three fields contribute about 45,000 to 50,000 bpd to the North Sea's Forties and Brent crude streams.
— CNBC's Tom DiChristopher contributed to this report.