Oil tumbled towards $110 a barrel on Friday on growing concern that oil demand may be weakening in the short term as global economic activity remains subdued.

Output cuts from top oil exporter Saudi Arabia suggest the kingdom may be worried about demand - at least at the start of the year. And faster-than-expected inflation in China may limit growth in the world's second-biggest oil consumer.

"Although the sharp Saudi production cuts last month toward 9 million barrels a day were widely mentioned as a bullish consideration, we viewed the reduction as further evidence of global demand weakening and consequently deserving of a bearish checkmark," said a research note from Jefferies Bache.

A firmer tone to the dollar also led some investors to cash in on the previous day's gains.

Brent futures dropped $1.51 to $110.38 per barrel by 1315 GMT. U.S. crude was off 68 cents at $93.14.

Oil 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 some of the optimism was sapped by data showing that 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.

Traders said investors this quarter will focus on further talks between U.S. lawmakers to resolve the debt crisis and seek cues on the global economy amid expectations that world growth in 2013 may be faster than 2012.

A drop in oil supplies from the Middle East may help to keep prices supported in the next few weeks.

OPEC's top producer cut oil production by 700,000 barrels per day (bpd) to 9 million bpd during the last two months of 2012, according to a source familiar with Saudi policy.

Major customers for Saudi crude said the cuts were driven by lower demand.

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. (Additional reporting by Ramya Venugopal in Singapore; Editing by William Hardy)