By Arathy Somasekhar

HOUSTON (Reuters) -Oil settled higher on Friday, notching a second straight week of gains on easing U.S.-China trade tensions, although prices were held back by expectations of higher supply from Iran and OPEC+.

Brent crude futures settled up 88 cents, or 1.4%, at $65.41 per barrel, while U.S. West Texas Intermediate crude futures closed 87 cents, or 1.4% higher at $62.49.

The benchmarks posted a weekly rise of 1% and 2.4% respectively.

The contracts fell by more than 2% in the previous session on the prospect of an Iranian nuclear deal, which could result in an easing of sanctions that could see Iranian crude return to the global market.

"Expected increases in OPEC+ oil production along with a more probable Iranian nuclear agreement has re-surfaced the bear trade," said Dennis Kissler, senior vice president of trading at BOK Financial.

"Near term, with geopolitical temperatures cooling, a strong seasonal travel demand will be needed in the coming months to counter the expected rises in supplies," Kissler added.

U.S. President Donald Trump said on Thursday the U.S. was nearing a nuclear deal with Iran, with Tehran "sort of" agreeing to its terms. However, a source familiar with the talks said there were still issues to resolve.

ING analysts wrote in a note that a nuclear deal lifting sanctions would allow Iran to increase oil output, resulting in additional supply of around 400,000 barrels per day.

Investor sentiment was boosted this week by the U.S. and China, the world's two biggest oil consumers and economies, agreeing to a 90-day pause on their trade war during which both sides would sharply lower trade duties.

The hefty reciprocal tariffs had raised concerns about a sharp blow to global growth and oil demand.

Analysts at BMI, a unit of Fitch Solutions, said in a research report, however, that "while the 90-day cooling off period leaves the door open for additional progress on lowering trade barriers on both sides, the uncertainty on longer-term trade policy will limit price upside."

Keeping a lid on supply additions, Kyiv and Moscow failed to agree to a ceasefire at their first direct talks in more than three years, with Russia presenting conditions that a Ukrainian source described as "non-starters".

Israel struck Yemen's Red Sea ports of Hodeidah and Salif on Friday, continuing its campaign to degrade Houthi military capabilities.

On the U.S. supply side, oil rigs fell by 1 to 473 this week, their lowest since January, energy services firm Baker Hughes said in its closely followed report on Friday.

The dollar rose on Friday after the latest round of economic data showed a jump in import prices while consumer sentiment remained subdued, putting it on pace for a fourth straight weekly advance.

(Reporting by Anna Hirtenstein and Robert Harvey in London. Additional reporting by Colleen Howe in Beijing and Siyi Liu in Singapore. Editing by Jan Harvey, Kirsten Donovan, Diane Craft and Deepa Babington)