(Reuters) - Oil fell more than $1 on Monday, taking North Sea Brent below $124 per barrel, after a week of gains pushed oil to 10-month highs on worries over disruptions to Middle East oil supplies. Sanctions against Iran over its nuclear program have cut off a major source of oil for many refiners and investors worry escalating confrontation in the Middle East could disrupt oil flows from other suppliers in the Gulf. Supplies from several smaller producers, including South Sudan, Yemen and Syria, have also been cut off in recent months, tightening supplies to some markets. But oil supplies from some other producers such as Saudi Arabia and Nigeria are improving and there has also been talk of a release of U.S. strategic stocks if oil prices continue to rise. Brent has risen 16 percent this year, after a 13.3 percent gain in 2011, raising fears of strains on some of the world's weaker economies, particularly in Europe. "Investors may be thinking they are a little over exposed by such a strong rally," said Harry Tchilinguirian, head of commodity derivatives research at BNP Paribas in London. "Oil prices are approaching levels that are similar to the highs of last year where we had a sharp downward correction." Front-month Brent crude oil futures fell $1.86 to $123.61 a barrel before recovering slightly to around $123.92 by 1118 GMT. U.S. crude slipped $1.53 to a low of $108.24. Saudi Arabia increased exports sharply last week and has been offering extra supplies to its biggest customers worldwide in what industry sources say appears to be a bid to tame runaway prices. Nigerian oil exports will jump to their highest in four months in April at almost 2 million barrels per day (bpd) as output from a new crude stream starts to flow. Markets have also been on alert after U.S. Treasury Secretary Timothy Geithner said last week the United States was weighing circumstances that could warrant tapping the nation's strategic oil reserves. "It is taking a lot of pressure off prices," said Ben Le Brun, markets analyst at OptionsXpress. "It is definitely in the United States' interest to do so. Oil at this level is very detrimental for the United States and the global economy." ECONOMIC IMPACT The International Monetary Fund has already flagged higher oil as a rising threat to the global economy. The warning came after data showed China's manufacturing sector contracted in February for the fourth straight month as new export orders dropped sharply in the face of the euro area debt crisis. "At these levels, prices do have the potential to begin to impact on consumer spending and economic activity and have started to become more of a concern to the top consumers," analysts at ANZ said in a report. The latest worries over Iran's nuclear program, which Tehran insists is for peaceful domestic power but the United States and its allies argue is designed to build an atomic bomb, follows a UN report last week. The U.N. nuclear agency said Iran has stepped up uranium enrichment, work that can have military purposes, indicating Tehran has no intention of backing off from a long-running dispute that has sparked fears of war. The U.N. report heightened fears of a supply disruption and could stoke worries in Israel, which has threatened Iran with pre-emptive strikes on nuclear sites. That would send shockwaves across the region and drive oil even higher. Ken Hasegawa, commodity sales manager at Newedge, said most of the gains in the last 10 days were due to 'the Iran issue': "We may see prices come down $2 to $3 a barrel in the next few days unless there is some change in the fundamental factors." Hedge funds and other large investors raised their bets on rising oil prices last week to the highest level since May, data from the U.S. regulator showed.

Source