UPDATE 12-Oil prices mark weekly gain ahead of Iran sanctions

* Oil notches weekly gain after hitting 4-year highs

* Jefferies bank warns of record low spare capacity

* U.S. drillers cut rigs for third week in a row -Baker Hughes (Updates with settlement prices; adds commentary)

NEW YORK, Oct 5 (Reuters) - Crude futures steadied on Friday after climbing to four-year highs earlier this week, and both benchmarks marked weekly gains ahead of U.S. sanctions on Iranian oil exports.

U.S. West Texas Intermediate (WTI) crude futures rose 1 cent to settle at $74.34 a barrel.

Brent crude futures for December delivery fell 42 cents to settle at $84.16 a barrel. On Wednesday, the global benchmark hit its highest price since late 2014, at $86.74.

"They're taking a pause after yesterday's sell-off," said Andrew Lipow, president of Lipow Oil Associates.

WTI marked a weekly gain of about 1.3 percent, while Brent gained around 1.4 percent for the week.

Price gains this week were limited by Saudi Arabia and Russia's saying they would raise output to at least partly make up for expected disruptions from Iran, OPEC's third-largest producer, due to the U.S. sanctions that are to take effect on Nov. 4.

But the pullback did little to dent a 15-20 percent rise in oil prices since mid-August, which has pushed them to their highest levels since late 2014.

Washington wants governments and companies around the world to stop buying Iranian oil to put pressure on Tehran to renegotiate a nuclear deal.

Saudi Arabian Crown Prince Mohammed bin Salman insisted the kingdom is fulfilling promises to make up for lost Iranian crude supplies, Bloomberg reported on Friday. Saudi Arabia is now pumping about 10.7 million barrels per day (bpd) and can add a further 1.3 million "if the market needs that," he said.

India will buy 9 million barrels of Iranian oil in November, two industry sources said, indicating that the world's third-biggest oil importer is to continue purchasing crude from the Islamic republic.

Many analysts say they expect Iranian exports to drop by around 1 million barrels per day.

"Iranian exports could fall below 1 million bpd in November," U.S. bank Jefferies said. "It now appears that only China and Turkey may be willing to risk U.S. retaliation by transacting with Iran."

The investment bank said there was enough oil to meet demand, but "global spare capacity is dwindling to the lowest level that we can document."

U.S. drillers cut two oil rigs in the week to Oct. 5, General Electric Co's Baker Hughes energy services firm said on Friday <RIG-OL-USA-BHI>, as rising costs and pipeline bottlenecks in the nation's largest oil field have hindered new drilling since June. (Reporting by Stephanie Kelly in New York; Additional reporting by Christopher Johnson in London and Henning Gloystein in Singapore Editing by Susan Thomas, Marguerita Choy and Leslie Adler)