*

Brent, WTI headed for biggest weekly drop since Sept.2

*

US crude stocks, fuel inventories fall, EIA says

*

China's Q3 economy grew at the slowest pace since early

2023

*

Hezbollah to escalate war with Israel after the killing of

Hamas

leader Yahya Sinwar

*

OPEC and IEA cut their forecasts for global oil demand in

2024

and 2025

(Updates prices as of 1028 GMT)

By Arunima Kumar

LONDON, Oct 18 (Reuters) - Oil futures edged lower on

Friday and were headed for more than a 6% weekly drop on

concerns about demand from China's slowing economy and easing

supply risk from the Middle East conflict

Brent crude futures fell 47 cents, or 0.6%, to

$73.93 a barrel by 1028 GMT, while U.S. West Texas Intermediate

crude was at $70.22 a barrel, down 45 cents, or 0.6%.

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 third

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 U.S. crude 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.