Oil hovers below $86 as traders eye inflation

Oil prices hovered below $86 a barrel Monday in Asia as traders eye inflation and consumer demand numbers for signs higher commodity prices are undermining global economic growth.

Benchmark crude for March delivery was down 7 cents at $85.51 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. The contract fell $1.15 to settle at $85.58 on Friday.

In London, Brent crude gained 68 cents to $101.62 a barrel on the ICE Futures exchange.

Investors will be watching closely the latest figures on U.S. inflation and retail sales this week for signs that higher food and fuel prices could be hurting consumption. China, the world's second-largest economy, reports inflation data Tuesday.

"The surge in commodity prices is expected to dominate this week's economic releases," Capital Economics said. "A rise in food and energy prices should have led to some stiff increases in consumer and producer prices."

Oil jumped to a two-year high above $92 earlier this month before falling to the $80s as fears eased that the political crisis in Egypt could disrupt crude supplies. President Hosni Mubarak resigned Friday, following 18 days of anti-government riots that brought millions of protesters to the streets.

Investors have turned their attention to the impact high oil prices could have on inflation as the U.S. economy appears to be on stronger footing.

"Worries over a global economic double-dip and a European sovereign credit crisis in 2010 have moved onto concerns about whether there is further need for QE2, given the more robust U.S. economic data and overheating pressures in Asia," Nomura said.

In other Nymex trading in March contracts, heating oil rose 1.6 cents to $2.71 a gallon and gasoline gained 2.3 cents to $2.49 a gallon. Natural gas futures were down 2.8 cents at $3.88 per 1,000 cubic feet.