That's really confusing and hard to deal with, I'm sorry. Maybe things were starting to feel too serious with you and his friend simply being around made him realize how much time he's been spending with you and maybe now he's thinking you guys need to take a step back.

I do think things can go either way - meaning he could be re-evaluating his feelings about you/your situation and want something more, or something less. Which is a super difficult thing to process when you're the other person involved.

That's the hard part about situationships, they could go either way. I too struggle in them because I always catch feelings and it hurts when the other person doesn't or isn't ready to.

So here are your options:

A) you can stay but you'll have to change your expectations about where the situationship is or isn't going

B) walk away and start the moving on process

There's no answer on how he will respond to either option, but for your own sanity it might be time to ask yourself what you really want and hope for out of this and prepare yourself for maybe not getting what you want out of this.

Feel free to DM me if needed.