Oil held above $125 a barrel on Tuesday, boosted by supply concerns amid tightening Western sanctions on Iran although expectations for an increase in U.S. crude inventories dampened sentiment.
Tension over Iran and supply disruptions in Syria, South Sudan and Yemen have supported oil prices this year. South Sudan said the Sudanese air force bombed key oil fields in a cross-border raid on Tuesday.
Brent crude eased by 22 cents to $125.43 by 1133 GMT after rising as high as $125.88 earlier in the session, close to its first resistance level at $126. U.S. crude was up 20 cents to $107.23.
"The price of oil is likely to continue to find it hard to exceed the $126-a-barrel mark," said Carsten Fritsch, oil analyst at Commerzbank. "This increases the potential for correction if financial investors see themselves forced to take profits. That said, any significant price slump is unlikely in view of the risks to supply."
Oil and other risk assets drew support from comments by the U.S. Federal Reserve on Monday indicating easy monetary policy would remain in place for some time.
Fed Chairman Ben Bernanke said the U.S. economy needs to grow more quickly if it is to produce enough jobs to bring down the unemployment rate and this process can be supported by continued accommodative policies.
Brent crude has risen about 17 percent so far this year on concern about supply disruptions from Iran as well as the actual outages in Syria, South Sudan and Yemen.
With the rally showing signs of running out of steam, analysts who use technical charts to predict price moves said after $126 Brent would need to push higher in order to clear the way for a further advance.
"Technically, there is still no clear momentum. Brent still needs to break the resistance of $126.50 and $127," said Olivier Jakob, analyst at Petromatrix, in a report.
Diplomatic sources said on Tuesday Iran and six world powers are expected to resume in the next few weeks long-stalled talks about the Islamic state's disputed nuclear programme.
Closer to home for Brent, Total shut down oil and gas production from its North Sea Elgin platform on Sunday following a gas leak. Oil from the field is exported through the Forties pipeline.
Forties is the largest crude stream underpinning Brent futures and two oil trading sources said Total's Elgin-Franklin site has been providing about 60,000 barrels per day (bpd) to Forties.
Supply reports this week are expected to show a rise in U.S. crude stocks. The first report is due later on Tuesday from the American Petroleum Institute.
A Reuters survey of five analysts produced an average forecast of a 2.8-million-barrel increase. All five forecast a rise in stockpiles.