Oil settles 1% lower

Oil prices settled lower on Friday as the rising possibility of a ceasefire deal in Gaza outweighed strong summer fuel demand and potential supply disruptions from Gulf of Mexico hurricanes.

Brent crude futures settled down 89 cents, or 1.02 percent lower, to $86.54 a barrel, after reaching their highest since April earlier in the session. US West Texas Intermediate (WTI) crude futures settled at $83.16 a barrel, down 72 cents, or 0.9 percent.

For the week, Brent rose 0.4 percent, while WTI futures posted a 2.1 percent rise.

The head of Israel's Mossad has returned from Doha after an initial meeting with mediators trying to reach a Gaza ceasefire and hostage release deal, and negotiations will resume next week, Prime Minister Benjamin Netanyahu's office said on Friday.

Netanyahu's office said in a statement that gaps remain between the sides.

"Obviously a breakthrough there would help calm the waters", said John Kilduff, partner at Again Capital. An easing of the Middle Eastern conflict reduces the risk premium of barrels out of the region and weighs on oil prices.

WTI did not settle on Thursday due to the Independence Day holiday, giving way to thin trading, but prices have risen this week on strong summer oil demand expectations in the US.

"The last couple of days represent the peak of the drive season, in terms of demand and prices continue to creep higher. This is coming from stronger consumer demand and the effects of Hurricane Beryl," Tim Snyder, economist at Matador economics said in a note on Friday.

The US Energy Information Administration (EIA), on Wednesday, reported a much larger-than-expected 12.2 million barrel inventories draw last week, compared with analyst expectations for a draw of 700,000 barrels.

On the supply side, Hurricane Beryl, a Category 2 storm, made landfall in Mexico, after killing least 11 people in the Caribbean, tearing through buildings and power lines across several Caribbean islands.

Mexico's major oil platforms are not expected to be affected by the storm, but oil projects in US waters to the north may be disrupted if the hurricane continues on its expected path.

The possibility that US interest rate cuts are approaching, meanwhile, raised expectations for an increase in oil demand.

US job growth slowed marginally in June, but a rise in the unemployment rate to more than a 2-1/2 year high of 4.1 percent and moderation in wage gains pointed to an easing of labor market conditions, and could put a rate cut at the July meeting in their sights.

"This morning's employment data shows that there are some cracks in the labor market, that could spur on a rate cut even this month", said Kilduff at Again Capital.

Lower interest rates can boost economic activity and increase crude oil demand.