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Crude Falls as Investors Fear Slowdown in China Demand

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NEW YORK--U.S. crude-oil futures pulled back from a three-month high on Friday after Chinese inflation data raised concerns about fuel demand in the world's largest energy consumer.

Light, sweet crude for February delivery settled lower by 26 cents, or 0.3%, at $93.56 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange fell $1.34 to $110.55 a barrel.

Driving oil's declines, China reported a higher December inflation rate than expected, suggesting the Chinese government's capacity to boost the economy through stimulus programs may be limited. If the Chinese government pares back on its stimulus, that could slow Chinese economic growth and put a dent in the country's oil demand.

China's consumer price index in December rose 2.5% from a year earlier and was up 0.5% from the previous month.

"After the Chinese inflation data, there were fears that China might delay some of the stimulus the market was expecting," said Gene McGillian, a broker and analyst at Tradition Energy, adding that the data prompted oil traders to take profits from gains earlier in the week.

Oil had rallied Thursday after Chinese export data for December showed growing Chinese demand for foreign goods.

Even the euro's climb against the dollar Friday couldn't pull crude prices higher. A weaker dollar generally helps oil as it makes dollar-denominated crude cheaper for holders of other currencies.

The euro is trading at its highest level against the dollar since April 3.

"The Chinese inflation data really undid all the goodwill from the Chinese data the day before, even in the face of a really strong euro," said Matt Smith, energy analyst at Summit Energy.

Before Friday, prices had gained more than 11% from November lows, as improving economic conditions and signs of rising fuel demand prompted bets on higher prices.

But as futures push toward $94 a barrel, the high end of a recent trading range, investors are growing more cautious, fearful that oil prices are set for a turnaround.

On Thursday, the world's largest oil exporter, Saudi Arabia, said it cut oil output 5% in December to 9.025 million barrels a day.

Analysts initially took the output cut as a sign that prices could rise amid lower supplies. But some are growing fearful that Saudi ministers are responding to weak demand, which could mean further price declines.

"The bigger picture is that we still have a well-supplied market and tepid demand," Smith said, adding that this could explain why gasoline and heating oil have fallen more sharply than crude Friday.

Front-month February reformulated gasoline blendstock, or RBOB, settled lower by 5.38 cents, or 1.9%, at $2.7395 a gallon. February heating oil settled 4.58 cents lower at $3.0085 a gallon.

Copyright (c) 2012 Dow Jones & Company, Inc.

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