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NEW YORK - Oil prices steadied on Friday, but fell for the week on a stronger U.S. dollar and fears that an economic slowdown would weaken crude demand.

Brent crude futures settled at $96.72 a barrel, gaining 13 cents. U.S. West Texas Intermediate crude ended 27 cents higher at $90.77. Both benchmarks fell about 1.5% on the week.

Oil briefly jumped in volatile trade on comments by Richmond Federal Reserve President Thomas Barkin nL1N2ZV147 who said the drive to raise rates also needs to be balanced with the impact rate hikes are having on the economy. But crude pared gains as investor concerns about upcoming rate hikes settled back in.

Strength in the U.S. dollar hit a five-week high, which also capped crude's gains as it makes oil more expensive for buyers in other currencies. [USD/]

"Although the oil complex has been able to shrug off a strong dollar on any given session, extended strong dollar trends will pose a major headwind against sustainable oil price gains," Jim Ritterbusch, of oil trading advisory firm Ritterbusch and Associates, said in a note.

In a sign of easing oil supply tightness, the price gap between prompt and second-month Brent futures has narrowed by about $5 a barrel since the end of July to under $1. The spread for WTI has shrunk to a 39-cent premium from a nearly $2 premium in late July.

Haitham Al Ghais, the new secretary general of the Organization of the Petroleum Exporting Countries, told Reuters he was optimistic about oil demand into 2023.

OPEC is keen to ensure Russia remains part of the OPEC+ group, Al Ghais said ahead of a Sept. 5 meeting.

Supplies could tighten again when European buyers start seeking alternative supplies to replace Russian oil ahead of European Union sanctions that take effect from Dec. 5.

"We calculate the EU will need to replace 1.2 million barrels per day of seaborne Russian crude imports with crude from other regions," consultancy FGE said in a note.

Data earlier this week showed U.S. crude inventories fell sharply as the world's top producer exported a record 5 million barrels of oil per day last week, with oil companies finding demand from European nations looking to replace Russian crude. [EIA/S]

However, the number of U.S. oil rigs, an early indicator of future supply, was unchanged at 601 this week, according to Baker Hughes Co, as energy companies slowly increase production to pre-pandemic levels with shale oil output in September expected to hit its highest since March 2020. [RIG/U]

Money managers, meanwhile, cut their net long U.S. crude futures and options positions in New York and London by 18,389 contracts to 154,824 in the week to Aug. 16, the U.S. Commodity Futures Trading Commission (CFTC) said.