LONDON: Oil slipped to around $123 per barrel on Monday as worries over a supply crunch eased after China lowered its economic growth target for 2012 and Iraq boosted production.
China cut its 2012 growth target to an eight-year low of 7.5 percent, lowering its long-standing annual goal of 8 percent, causing a fall in Asian shares and raising questions over oil demand.
Brent crude oil futures for April fell 99 cents to a low of $122.66 before recovering to trade around $123.00 by 1025 GMT. US April crude on Monday fell $1.20 to a low of $105.50 per barrel but then rebounded to around $105.78.
Carsten Fritsch, commodity analyst at Commerzbank in Frankfurt, said the Chinese announcement has focused the international markets on the global growth outlook but pointed out Iran is a dominant factor on the supply side.
"Lower expectations for China growth are one dampening factor. Lower China growth means lower commodities demand. That is weighing on sentiment," he said.
Sanctions against Iran, the world's fifth largest oil exporter, have made oil trading more difficult and the country's biggest customers including China, Japan and India are reducing imports from Tehran, supporting prices.
India's Mangalore Refinery and Petrochemicals Ltd (MRPL), one of Iran's biggest customers, announced plans to cut its yearly Iranian oil import deal by as much as 44 percent to 80,000 barrels per day in 2012/2013.
Saudi Arabia's current spare capacity is 2.5 million bpd while production is now at 9.8 million bpd, the country's deputy oil minister Abdul Aziz Bin Salman bin Abdulaziz said last week, adding that his country's main concern was to keep the global oil market well supplied.
In a possible response to additional demand, Saudi Arabia has raised the price of its flagship Arab Light crude oil for customers in Asia, who buy more than half of its crude exports, by $1.25 a barrel for April.
Iraqi officials said oil production had risen above 3 million bpd, up from Reuters estimates of around 2.7 million bpd in February, boosting global oil supply at a time when energy market weigh the impact of Iranian sanctions.
Deputy Prime Minister Hussein al-Shahristani added Iraq will begin long-awaited exports from its first off-shore floating oil terminal within three days.
A delay of up to four more days in restarting Enbridge Inc's oil pipeline system in the US Midwest also provided support.
Tobias Merath, head of Global Commodity Research at Credit Suisse Private Banking, said it should be no surprise that oil prices are retreating slightly as geopolitical risks have not intensified any further.
"Nevertheless, oil markets remain tight and there are still plenty of risks to the supply side. Thus, the downside risks to oil prices are probably limited," he said. For the week ahead, CPI data out of China and US jobs data, both due on Friday, are focal points for the market.
The latest data out of China showed that its services sector ran at its fastest pace in four months in February -- contrary to an official report on Saturday that signalled that the sector was shrinking.