Oil prices slipped to near $106 a barrel on Monday as China lowered its economic growth target, but simmering tensions over Iran's nuclear program kept crude near 10-month highs.
By early afternoon in Europe, benchmark oil for April delivery was down 47 cents to $106.23 in electronic trading on the New York Mercantile Exchange. In London, Brent crude was down 4 cents to $123.61 per barrel on the ICE Futures exchange.
China's premier, Wen Jiabao, lowered the country's growth target to 7.5 percent from the 8 percent it has stood at for years and disclosed plans to boost domestic consumption and maintain a "prudent" monetary policy.
China's announcement, after growth of 9.2 percent in 2011 and 10.3 percent in 2010, "hurt risk appetite and raised some concerns about the levels of the Asian oil demand," said analysts at Sucden Financial in London.
Crude jumped to $110.55, the highest since May, late Thursday after an unconfirmed Iranian media report of a pipeline explosion in Saudi Arabia. Saudi officials denied the report, which helped send crude down $2.14 to settle at $106.70 per barrel in New York on Friday.
"The magnitude of the response to the unfounded rumor highlights a tight crude supply situation that will be keeping the entire market highly responsive to even the smallest hint of a supply disruption," energy consultant Ritterbusch and Associates said in a report.
Crude has risen from $96 last month amid investor fears that growing tension over Iran's nuclear program will spark an armed conflict and disrupt global crude supplies. Analysts say Saudi Arabia and other oil producers do not have enough spare capacity to quickly make up for Iran's exports, which totaled 2.6 million barrels a day in 2011.
"In view of the Iran crisis, speculative financial investors are betting that oil prices will continue to climb, and in doing so are themselves contributing majorly to the increase," said a report from Commerzbank in Frankfurt.
Traders will also be closely watching the latest U.S. economic indicators this week. The economy has been showing signs of gradual improvement in recent months, which has bolstered investor optimism and pushed crude prices up from $75 in October.
Monthly employment data is scheduled to be released on Friday.
In other energy trading, heating oil rose 1.16 cents to $3.2134 per gallon and gasoline futures added 0.12 cent at $3.2733 per gallon. Natural gas fell 7.3 cents at $2.411 per 1,000 cubic feet.