Oil fell slightly on Wednesday, after the International Energy Agency (IEA) cut its demand outlook, tempering optimism on the global economy which helped push oil to its highest in nine months last week.
A cut in the demand outlook from the IEA of 90,000 barrels per day saw oil retreat from the day's high after Tuesday's more bullish reports from the U.S. Energy Information Administration (EIA) and Organization of the Petroleum Exporting Countries.
Front month Brent futures shed 10 cents to trade at $118.56 a barrel by 1010 GMT having touched a session high of $118.96, not far off a nine-month high of $119.17 hit last week.
U.S. crude futures gained 12 cents to $97.63.
The IEA's downbeat prognosis for 2013 contrasted with that of OPEC's which said consumption oil will expand by 840,000 barrels per day (bpd) this year, 80,000 bpd more than expected.
The EIA also increased its forecast for demand growth, by 110,000 bpd to 1.05 million bpd in 2013, taking global demand to 90.2 million bpd this year.
However many analysts think that the recent run up in Brent crude, which has seen it rise to 6.6 percent this year to its highest since May, is unsustainable.
"I'm surprised by the gains, the fundamentals don't justify them, we have seen demand forecasts cut and oil should be $8-$10 lower" said EGL analyst Andy Sommer in Dietikon, Switzerland.
Investors are also taking cues from the currency markets, which were awaiting a meeting of G20 finance ministers and central bankers this week amid increasing international tensions over the euro's strength and the yen's weakness.
ECONOMY AND DEMAND BOOST
U.S. crude inventory may have risen last week as refineries head into maintenance in the world's biggest oil consumer, but an expected cut in imports may negate the impact in coming weeks. Crude stocks may have risen 2.4 million barrels in the week to Feb. 8, a Reuters poll showed.
Traders are also eyeing euro zone industrial output and U.S. retail sales data due later in the day for more cues.
Hints that tension over Iran's disputed nuclear programme may be easing also helped keep prices in check.
Iran acknowledged it was converting some of its higher-grade enriched uranium into reactor fuel, a move that could help to prevent a dispute with the West over its nuclear programme hitting a crisis in mid-2013.
Investors were also watching the implications of a nuclear test by North Korea, especially after the United States and China came down strongly on the Asian nation.
North Korea said the test had "greater explosive force" than those it conducted in 2006 and 2009.
Its KCNA news agency said it had used a "miniaturised" and lighter nuclear device, indicating it had again used plutonium, which is suitable for use as a missile warhead.
"While North Korea is a negligible oil consumer, the move nevertheless could be seen as contributing to geopolitical instability in the world's pre-eminent demand growth region," JBC Energy said in a report. (Editing by Louise Ireland)