By Sonali Paul and Mohi Narayan

NEW DELHI (Reuters) - Oil prices extended losses on Friday, and were headed for a weekly fall, as the prospect of extra supply from Iran returning to the market eclipsed fears of a possible supply disruption arising from a Russian invasion of Ukraine.

Brent crude futures fell 65 cents, or 0.7%, to $92.32 a barrel at 0725 GMT, extending a 1.9% drop from the previous session.

U.S. West Texas Intermediate (WTI) crude futures shed 71 cents, or 0.7%, to $91.05 a barrel, after sliding 2% in the previous session.

Both benchmark contracts hit their highest levels since September 2014 on Monday, but were headed for their first weekly fall in nine weeks amid reports of a deal taking shape to revive Iran's 2015 nuclear agreement with world powers.

Diplomats said the draft accord outlines a sequence of steps that would eventually lead to granting waivers on oil sanctions. That would bring about 1 million barrels a day of oil back to the market, but the timing is unclear.

"The downward pressure on crude from the prospect of a deal is likely to sustain ... unless the parties end the latest round of talks still in a deadlock," said Vandana Hari, founder of oil market analysis provider Vanda (NASDAQ:VNDA) Insights, in a note.

The Ukraine standoff fear premium in crude is starting to fray at the edges, Hari added.

Still, analysts do not expect prices to fall much in the near term, even with the prospect of more Iranian oil, with the Organization of the Petroleum Exporting Countries and allies, together called OPEC+, struggling to meet their production targets.

"Oil markets are vulnerable to supply disruptions given global oil stockpiles are tracking near seven‑year lows and as OPEC+ spare capacity comes into question given disappointing OPEC+ supply growth," Commonwealth Bank (CBA) analyst Vivek Dhar said in a note.

With oil demand also recovering as air travel and road traffic picks up, CBA sees Brent holding in the $90 to $100 a barrel range in the short term and topping $100 "quite easily" if tensions escalate between Russia and Ukraine.

Pro-Russia rebels in Ukraine accused government forces of shelling a village on Friday while Russian media reported more infantry and tank units were returning to their bases in contrast to Western fears of an imminent Russian invasion.