SINGAPORE, Jan 11 (Reuters) - Brent crude futures fell towards $111 a barrel on Friday on concern that faster-than-expected inflation in China will limit room for further policy easing to boost growth in the world's second-biggest oil consumer.
Still, production cuts in top oil exporter Saudi Arabia, which pushed Brent to a three-month high and U.S. crude to a four-month peak in the previous session, kept losses in check. Both Brent and U.S. crude are on track to end the week with their longest weekly winning streak since August.
China's annual consumer inflation accelerated to a seven-month high of 2.5 percent in December.
"China's inflation was hotter than expected which might add a little bit of downside risk and some investors may be cashing in profits," said Ben Le Brun, market analyst at OptionsXpress.
Front-month Brent futures shed 27 cents to $111.60 per barrel by 0736 GMT, but were on track for their third straight weekly gain. U.S. crude was little changed at $93.82 per barrel, poised for a fifth weekly increase.
Oil prices had gained support from better-than-expected trade numbers from China, relief after the short-term resolution of the U.S. fiscal crisis and data showing a sharp drop in U.S. crude imports in the last week of 2012.
But the gains in both contracts were smaller than in previous weeks, suggesting concerns about underlying demand. U.S. crude gained less than 1 percent while Brent added just 0.3 percent.
Traders said investors this quarter will focus on further talks between U.S. lawmakers to resolve the debt crisis as well as seek cues on the global economy amid expectations that world growth in 2013 may be faster than 2012.
SUPPLY WOES
A drop in oil supplies from the Middle East may keep prices well supported in the next few weeks.
OPEC's top producer slashed oil production by 700,000 barrels per day (bpd) to 9 million bpd during the last two months of 2012, according to industry sources. Major customers for Saudi crude said the cuts were driven by lower demand.
Saudi Arabia says it favours an oil price of about $100 a barrel, but recent reports suggested that the market is well supplied and that output from North America will grow rapidly over the next two years.
Flows of oil through Yemen's main crude export pipeline have stopped again after it was blown up by unknown attackers on Thursday morning, government and oil industry officials said.
Yemen resumed oil pumping on Dec. 31 at a rate of around 70,000 barrels per day (bpd) after the latest repairs to the pipeline, which used to carry around 110,000 bpd of Marib light crude to an export terminal on the Red Sea before a spate of attacks began in 2011.
ECONOMIC SIGNALS
Oil prices may also get a boost from a brightening global economic outlook.
The euro zone economy will recover later in 2013 and there are already signs of stabilisation, the European Central Bank said on Thursday after it unanimously held interest rates at a record low.
China's export and import growth grew more strongly than expected in December, suggesting a rebound in economic activity and early signs of an increase in global demand for its goods.
"Chinese trade data for December gave further confirmation of a mild turnaround in the economic fortunes of the world's most populous country," JBC Energy said in a report.
"In line with generally encouraging readings, preliminary figures for crude and oil product imports also ticked higher." (Editing by Edwina Gibbs)
