* Benchmarks head for weekly losses of about 9%

* Cargo vessels could face fees under Iran draft plan

* US non-farm payrolls report due on Friday

(Updates prices, market activity, adds analyst comment)

By Stephanie Kelly

LONDON, Aug 7 (Reuters) - Oil prices edged lower on Friday

as investors weighed signals that Gulf states and Iran were

closing in on a deal to reopen the Strait of Hormuz under a

temporary arrangement aimed at allowing for broader talks to

bring the Iran war to a close.

Brent crude futures were down 57 cents, or 0.7%, at

$81.92 a barrel at 1014 GMT. U.S. West Texas Intermediate

futures fell 33 cents, or 0.4%, to $76.96.

Oil futures settled more than $3 a barrel higher on Thursday

as Iran reviewed a bill to ban U.S. and Israeli vessels from the

Strait of Hormuz, through which roughly a fifth of the world's

oil and liquefied natural gas normally passed before the war

began at the end of February.

Prices fell earlier in the week as a possible solution to

the conflict looked more likely, and both benchmarks are on

course for a weekly loss of about 9%.

Still, analysts said that this week's developments have

signalled that hostilities between Iran and the U.S. are not yet

over.

Iran is seeking fees of between 5% and 7% of the price of

cargoes from ships using the strait, a senior Iranian official

said. Oman, meanwhile, is discussing fees of about 3% while

Washington wants no fees at all.

Four industry sources have said the proposed deal is not

easily workable because of U.S. sanctions and restrictive

insurance clauses on any payments.

"The structure of the Iran-Oman agreement in its current

form and the power it yields to Iran is nothing that (U.S.

President Donald) Trump can accept politically," said Bjarne

Schieldrop at SEB Research. "Trump would face heavy political

criticism at home if he did."

While this week's signals on a potential deal have driven a

roller-coaster ride in market sentiment, the market remains in

the dark as to what needs to happen for the agreement to be

clinched, said Vandana Hari, founder of oil market analysis

provider Vanda Insights.

Meanwhile, Saudi Arabia expects imminent coordinated attacks

from Iraqi militias north of the Gulf state and from Yemen's

Houthis from the south under the supervision of Iran's Islamic

Revolutionary Guard Corps, a senior Saudi official said.

The official, speaking on condition of anonymity, said late

on Thursday that intelligence reports from Saudi Arabia, the

United States and other regional countries indicated civilian

and economic sites could be targeted, including energy

infrastructure, ports and airports.

Yemen's Houthis said they carried out missile and drone

attacks on Saudi deployments in Marib and Hadramout in Yemen on

Thursday.

Trump told reporters on Thursday that he believed that the

war would be over soon.

Investors are awaiting U.S. payrolls data later on Friday,

which could offer a steer on the U.S. Federal Reserve's thinking

on interest rates. Higher interest rates raise consumer costs,

which can reduce economic growth and demand for oil.