Oil down as Iran deal eyed; U.S. crude in for best week in four years

NEW YORK (Reuters) - Oil prices fell on Friday as fears about the disruption of Middle East crude shipments from Yemen's conflict eased and the focus turned to the likelihood of an Iranian nuclear deal by next week that could put more supply on the market.

But prices were still headed for their second straight week of gains. U.S. crude was on track for its best week since 2011, reflecting the ground made by market bulls from six-year lows hit earlier this month.

Benchmark Brent oil and U.S. crude were down about 3 percent in New York because of reduced threats to Middle East oil facilities and traffic from the Saudi-led air strikes in Yemen.

Brent showed a $1.60 decline at $57.59 a barrel by 1:14 p.m. EDT (1714 GMT). U.S. crude slid $1.65 to $49.78.

For the week, Brent was up more than 4 percent, while U.S. crude was almost 9 percent higher, accounting from gains in earlier sessions.

Prices rose about 5 percent on Thursday alone on fears that the conflict in Yemen could disrupt cargoes on the neighboring Bab el-Mandeb Strait, where 3.8 million bpd of crude and oil products flow.

Analysts said the market had also been less concerned lately with the growing oversupply in oil, although Friday's data showing the smallest weekly drop since December in the U.S. rig count could reinforce those worries. [RIG/U]

Since oil began collapsing from last summer's highs above $100 a barrel, the rig count has been an important indicator of how much the industry was willing to cut future supply to boost prices.

Friday's session focused on Iran as Tehran and major powers pushed each other for concessions ahead of an end-of-March deadline for a preliminary nuclear deal that could lift sanctions on the OPEC nation's oil exports.

Tehran is keen to recover market share lost under the U.S.-led sanctions that have restricted its crude exports to just 1 million barrels per day from 2.5 million bpd in 2012.

"Both sides have a lot of skin in the game in terms of the pressure to deliver something, so we're probably going to hear noise that they have a deal or are close enough but will have to postpone to another deadline," said John Kilduff, partner at New York energy hedge fund Again Capital.

(Additional reporting by Christopher Johnson in London and Henning Gloystein and Keith Wallis in Singapore; Editing by Marguerita Choy and Lisa Von Ahn)