Brent crude climbed to nearly $124 on Tuesday as fears of supply disruptions from Iran and unresolved tensions over its nuclear program outweighed concerns about demand and slowing global economic growth.     

Investor worries grew after Israeli Prime Minister Benjamin Netanyahu showed no signs of backing away from possible military action against Iran after a meeting with US President Barack Obama on Monday.      

That followed comments from the International Atomic Energy Agency (IAEA) that there were indications of activities at an Iranian military site which its inspectors want to visit as part of a probe that was prompted by fears Iran may be seeking nuclear weapons capability.      

Front-month Brent crude was up 11 cents at $123.91 a barrel, after reaching a high of $124.39. US April crude edged up 8 cents to $106.80, having dropped from $107.34 earlier in the day.     

"The supply risk premium to Iran is supporting prices, but the main volatility is from the demand side," said Jeremy Friesen, a commodity strategist at Societe Generale.      

"The market has already priced in China's target growth cuts as they know it is trying to ease the economy and people believe China has the capacity to anticipate any unexpected slowdown."     

China cut its 2012 growth target to an eight-year low of 7.5 per cent, in line with expectations, and made boosting consumer demand the year's first priority as it looks to wean the economy off its reliance on external demand and foreign capital.

The country appears determined to push forward with market-oriented fuel price reforms that would boost prices in the near term, as they are consistent with its aim of restructuring the economy towards more efficient energy use, JP Morgan analysts said in a note on Monday.     

If consumers believe that price reforms are around the corner, they will tend to hoard crude and products, they said.      

"This could add to the precautionary inventory building we may be seeing globally at the secondary and tertiary level due to worries over Iran."     

Prices were also supported as unrest in the Middle East continued, with a bomb attack on the Egyptian pipeline carrying gas to Israel and Jordan, the 13th such attack since President Hosni Mubarak was toppled in 2011.

Further signs of a slowing global economy ahead of CPI data out of China and US jobs data due on Friday could put a cap on oil price gains and even weaken the market, analysts said.         

"It's interesting that weak economic data hasn't caused a sell-off in oil, but as more data emerges this week, it could disappoint investors enough to weaken prices," Friesen said.         

Euro zone private sector surveys showed a sharp downturn among activity at Italian and Spanish businesses dragged the currency bloc back into decline last month. Growth slowed in Germany, the region's biggest and strongest economy, and stalled in France.

While the US services sector expanded at its fastest pace in a year in February, new orders for factory goods dropped in January, data showed.      

The Commerce Department said orders for manufactured goods fell 1.0 per cent, the biggest decline since October 2010, while the Institute for Supply Management said its services index rose in February, besting economists' expectations for a drop. – Reuters