* Iran converts some enriched uranium into reactor fuel
* OPEC lifts 2013 world oil demand growth outlook
* North Korea confirms it carried out nuclear test
* U.S. crude stocks seen up 2.9 mln bbls -Reuters poll (Updates throughout)
By Peg Mackey
LONDON, Feb 12 (Reuters) - Oil rose above $118 a barrel on Tuesday as investors regained their appetite for risk and OPEC raised the outlook for the amount of crude it will need to pump this year.
Tension in the Middle East remained high over Iran's nuclear programme, and analysts said investor concerns were focussed more on Iran than on North Korea's third nuclear test.
Adding to the bullish tone, the 12-member Organization of the Petroleum Exporting Countries said world oil demand will grow faster than previously thought this year.
"Overall, I would say the OPEC report is constructive and mildly bullish based on the demand forecast," said Dominick Chirichella, senior partner at Energy Management Institute in New York.
Brent crude was up 35 cents at $118.48 a barrel by 1418 GMT, after settling down 77 cents on Monday.
U.S. crude was up 37 cents at $97.40 a barrel.
"Fresh speculative money coming into the market, more effective sanctions on Iran and cold weather are all supportive for oil," said Christopher Bellew, a broker at Jefferies Bache.
The U.N. Security Council will hold an emergency meeting to discuss North Korea's test at 9 a.m. EST (1400 GMT) on Tuesday.
But it was Iran's nuclear programme that preoccupied oil dealers. Iran is converting some of its higher-grade enriched uranium into reactor fuel, the Islamic republic's foreign ministry spokesman said.
Israeli Prime Minister Benjamin Netanyahu said on Monday the new centrifuges Iran was installing for its uranium enrichment programme could cut by a third the time needed to create a nuclear bomb. Tehran says the nuclear programme is for peaceful energy purposes
U.S. OIL INVENTORIES
Oil markets were also focusing on weekly inventory data in top consumer the United States. U.S. commercial crude oil stockpiles are expected to have increased by 2.9 million barrels last week, a preliminary Reuters poll of four analysts showed on Monday.
Distillate stocks, which include heating oil and diesel fuel, were projected to be down 800,000 barrels on average, while gasoline inventories were seen unchanged.
Industry group the American Petroleum Institute is to release its weekly report at 1630 EST (2130 GMT). The U.S. government's Energy Information Administration is set to follow with its own figures on Wednesday.
Also supportive for oil was a statement from the Group of Seven nations vowing not to target exchange rates which weakened the dollar. (Additional reporting by Osamu Tsukimori in Tokyo; Editing by Alison Birrane)
