Crude prices remained supported by the prospect of an Iranian supply squeeze following the imposition of U.S. oil sanctions, with yesterday's rally stymied by short-term bearish supply factors that continue to weigh on prices.
Saudi Arabia's output rose by 230,000 barrels a day in July to 10.65 million barrels per day. Brent crude, the global benchmark, shed 2.2 per cent to $72. U.S. crude futures slumped last month by the most in two years, and traded just below $68 a barrel on Wednesday on the New York Mercantile Exchange.
"Crude is holding up with the perspective of reduced Iranian output, but at the same time weighed down by indications of increased OPEC and Russian production for July", Harry Tchilinguirian, senior oil analyst at BNP Paribas said.
Futures reversed course after trading lower on concerns about oversupply early in the session.
The speculator group cut its combined futures and options position in NY and London by 5,287 contracts to 407,001 during the week ending July 31, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.
The combination of crumbling Venezuelan oil production and the aggressive US efforts to curtail Iranian exports is going to tighten the market.
Saudi Arabia, Russia, Kuwait and the United Arab Emirates have increased production to help to compensate for an anticipated shortfall in Iranian crude supplies once US sanctions take effect.
"At the moment, there is a mismatch in timing, where there is increasing OPEC supply and yet we're not seeing a significant reduction in Iranian supply", Patterson said.
Oil last month posted the worst loss in two years on concern a trade war between the United States and China could curb economic growth and limit energy demand.
Meanwhile, a US decision to scale back fuel standards would lead to higher demand, though that could be balanced by trade tensions between the United States and China.
Brent prices fell more than 6 percent in June and US crude slumped about 7 percent, the biggest monthly declines for both benchmarks since July 2016.
The kingdom has been under acute pressure from President Donald Trump to open the taps as he chokes off exports from Saudi's political rival, Iran. After Trump called for a 15 percent increase in tariffs on Chinese goods earlier this week, Beijing on Friday announced it was targeting $60 billion worth of USA goods in response.
With WTI crude barrels falling back beneath 68.00, buyers will be looking to halt any further declines into the last swing low at the 67.00 level in hopes of propping prices back over last week's high of 70.40 with eyes on the year's current highs of 75.35, while bears will be looking to drive the action further down into mid-June's lows at 63.50.