* Iran's Rouhani says U.S. will lift sanctions
* Market braces for extra 1 mln bpd Iran supplies in H2
* Front-month oil prices set for biggest weekly loss since March
SINGAPORE, May 21 (Reuters) - Oil prices edged up on Friday, taking a breather after three days of losses as investors braced for the return of Iranian crude supplies after officials said Iran and world powers made progress on talks to revive a 2015 nuclear deal.
Brent crude futures for July rose 10 cents, or 0.2%, to $65.21 a barrel by 0032 GMT while U.S. West Texas Intermediate for July was at $62.16 a barrel, up 22 cents, or 0.4%.
Both contracts are down nearly 5% for the week and on track to post their biggest weekly loss since March after Iran's president said the United States was ready to lift sanctions on his country's oil, banking and shipping sectors.
Iran and world powers have been in talks since April on reviving the deal and the European Union official leading the discussions said on Wednesday he was confident a deal would be reached.
"While the ink is not yet dry and outstanding issues remain to be resolved, significant progress appears to have been made in the ongoing nuclear negotiations in Vienna and around 1 million barrels per day of additional Iranian barrels looks set to potentially hit the market in the back half of this year," RBC Capital Markets' Helima Croft wrote in a note.
Investors remain upbeat about fuel demand recovery this summer as vaccination programmes in Europe and the United States would allow more people to travel although rising cases across parts of Asia could weigh down global consumption.