Oil prices fell on Friday, reversing earlier gains, as investors weighed the risk of renewed military escalation between the U.S. and Iran following the midterm elections, alongside prospects for a diplomatic breakthrough.

International benchmark Brent crude futures fell 1.38% to $96.93 per barrel by 4:38 a.m. ET, having jumped to almost $100 a barrel earlier in the session. U.S. West Texas Intermediate crude futures dropped 1.49% to $89.17 per barrel.

Brent crude is down from a weekly peak above $110 a barrel on Monday, while WTI has fallen from levels above $100 a barrel over the same period.

Investors are assessing whether the conclusion of the U.S. midterm elections could pave the way for renewed actions against Iran, potentially threatening oil supplies from the Middle East.

Bob McNally, Rapidan Energy Group founder and president, told CNBC's "Squawk Box Asia" that he sees an 80% probability of military fighting resuming, forecasting that both oil benchmarks could climb above $100 a barrel.

However, hopes for a diplomatic resolution have also emerged after Iran reportedly sent a nuclear proposal to Washington through Qatar, Reuters reported, citing a senior Iranian official.

Iran reported three additional attacks on oil tankers in the Strait of Hormuz on Thursday, while data from the UK Maritime Trade Operations (UKMTO) indicated that attacks on vessels were continuing at a near-record rate.

"President Donald Trump is determined, as a legacy item, almost at all costs, to prevent Iran from getting a nuclear weapon, having them give up their nuclear capabilities," McNally said.

"The Iranian regime, on the other hand, is not willing to do it. And as long as that core difference in that deal space is absent, the escalation dynamic remains in place," he added.

McNally's view is shared by other analysts, including Lombard Odier's chief economist Samy Chaar and head of investment strategy Luca Bindelli.

— CNBC's Lim Hui Jie contributed to this report.