Crude oil fell as early signs emerged that negotiations between the United States and Iran over reopening the world's most important energy transit corridor are making progress.

WTI futures dropped about 2.3%, settling near $92 a barrel, and posted their first weekly decline since the end of August, as traders grew more optimistic that the talks could produce results.

The US and Iran are reportedly pushing for a breakthrough under which Iran would reopen the Strait of Hormuz and the US would lift its blockade of Iranian ports.

Even so, the two sides have repeatedly appeared close to a deal before, only for negotiations to collapse in the end.

Signs of tight supply in the physical crude market remain, and many traders are still unwilling to adjust positions until they see a clear increase in supply.

A White House official said US President Donald Trump remains willing to negotiate with Iran, but stressed that the US does not need to negotiate because sanctions and the blockade have put America in a strong position.

"Similar agreements have been announced many times before, but there has been little real progress," said Emily Ashford, head of energy research at Standard Chartered. "And even if there is a diplomatic breakthrough, it will not immediately restore disrupted crude shipments, bring shipping back to normal, replenish falling inventories, or lift market confidence."

This week, conflicting signals about peace prospects, signs of rising Middle East crude shipments, and speculation that the US could ban diesel exports kept crude swinging back and forth.

Brent crude is still up more than 70% so far this year, adding to inflationary pressure.

Although near-month futures retreated on Friday, some widely watched indicators still show that concerns about near-term supply remain elevated.

Among them, Brent's prompt spread, the gap between the two nearest contracts, has widened from less than $1 a barrel at the end of last month to nearly $7.

This bullish structure, known as backwardation, is a typical feature of a tight market.

WTI November futures settled down 2.3% at $92.41 a barrel; Brent November futures settled down 2.1% at $104.32 a barrel.