By Arunima Kumar

LONDON (Reuters) -Oil futures in inched lower and were headed for more than a 6% weekly drop on Friday on concerns about demand from China’s slowing economy and easing supply risk from the Middle East conflict.

futures inched 33 cents lower, or 0.44%, to $74.12 a barrel by 1143 GMT, while U.S. West Texas Intermediate crude was at $70.41 a barrel, down 26 cents, or 0.4%.

The benchmarks are set to fall more than 6% this week, their biggest weekly decline since Sept. 2, after OPEC and the International Energy Agency cut their forecasts for global oil demand in 2024 and 2025.

Fears also eased about a potential retaliatory attack by Israel on Iran that could disrupt Tehran’s oil exports.

In China, the world’s top oil importer, the economy grew at the slowest pace since early 2023 in the third-quarter, though consumption and industrial output figures for September beat forecasts.

China’s refinery output also declined for the sixth straight month as weak fuel consumption and thin refining margins curbed processing.

Meanwhile, China’s central bank rolled out two funding schemes that will initially pump 800 billion yuan ($112.38 billion) into the stock market through newly-created monetary policy tools.

Supporting crude prices were figures from Energy Information Administration (EIA) which showed oil, gasoline and distillate inventories fell last week.

U.S. retail sales increased slightly more than expected in September, with investors still pricing in a 92% chance of a Federal Reserve rate cut in November.

“Positive U.S. economic data has helped alleviate some growth concerns, but market participants continue to monitor potential demand recovery in China following recent stimulus measures,” said Hani Abuagla, senior market analyst at XTB MENA.

Markets, however, remained concerned about possible price spikes given simmering Middle East tensions, with Lebanon’s Hezbollah militant group saying on Friday it was moving to a new and escalating phase in its war against Israel after the killing of Hamas leader Yahya Sinwar.

“Although the U.S. would like to believe that the killing of the leader is an opportunity to resume serious and meaningful peace talks, it seems more like a wishful thinking than a realistic alternative,” said Tamas Varga, an analyst with oil broker PVM.