Oil down on firmer dollar, set for weekly gain on OPEC hopes

By Ethan Lou

NEW YORK (Reuters) - A stronger dollar weighed down oil prices on Friday, but Brent crude was headed for its first weekly gain in five on hopes that OPEC might agree to limit production cuts at the end of the month.

The Organization of the Petroleum Exporting Countries is moving closer to finalizing its first deal since 2008 to limit output, with most members prepared to offer Iran flexibility on production volumes, ministers and sources said.

Iran has been the main stumbling block for capping production, and while it has not yet responded to the proposal, it suggests OPEC members may be coming nearer to a consensus ahead of their meeting in Vienna on Nov. 30.

Prices, however, were depressed by a stronger dollar, which reached its highest levels against a basket of currencies since 2003 after U.S. Federal Reserve Chair Janet Yellen said on Thursday a rate increase could happen "relatively soon."

A stronger dollar makes oil, which is priced in the greenback, more expensive to buyers using other currencies.

Brent was down 42 cents, or 0.9 percent, to $46.07 per barrel at 10:43 a.m. (1543 GMT), but it was still on track to gain nearly 3 percent for the week, its first weekly increase in five weeks.

U.S. West Texas Intermediate crude was down 41 cents, or 0.9 percent as well, at $45.01 a barrel. It was on track to gain 3.6 percent for the week, the first weekly increase in four.

OPEC agreed late September to limit production to boost prices, but had not set out how much each individual member should cut.

Russian Energy Minister Alexander Novak said after meeting OPEC members he was more confident an output deal could be reached between Moscow and the group to help to boost oil prices.

Saudi Arabian Energy Minister Khalid Al-Falih said on Thursday he was optimistic about OPEC's deal to limit oil output and mentioned the lower end of a previously agreed production target of 32.5-33 million barrels per day.

But analysts said there were still obstacles for OPEC to overcome before it could reach a deal.

"Iranian and Iraqi intransigence to the proposed output cuts remains in full force while competitive pressures among OPEC members was highlighted by news that Iran displaced Saudi Arabia as the top oil supplier to India," Stephen Brennock of oil brokerage PVM said.

Jason Gammel of U.S. investment bank Jefferies said a cut of at least 700,000 bpd was needed to balance the market in the first quarter of 2017.

(Additional reporting by Ahmad Ghaddar in London, Jane Chung in Seoul and Henning Gloystein in Singapore; Editing by Marguerita Choy and Jane Merriman)