Oil prices fall as inflation jumps

From news services

NEW YORK — Oil prices reversed course and fell Friday after the government reported that consumer inflation jumped in November by the largest amount in more than two years, raising worries that it could crimp demand.

Energy traders worry that rising inflation will cut consumers’ buying power, and reduce demand for gasoline and oil. They also fret that higher inflation means the Federal Reserve will stop cutting interest rates. Many analysts cite the Fed’s recent rate-cutting campaign, and its role in depressing the value of the dollar against other currencies, as a major factor behind oil’s rise this fall to record levels.

Earlier Friday, prices rose after the International Energy Agency boosted its oil demand forecast for next year. However, many analysts think the IEA, an adviser to mostly western, industrialized nations, is overlooking signs that demand for crude is weakening.

"Usually the IEA underestimates demand but now I think they are overestimating demand," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

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