Brent crude fell to below $114 as a quiet start to the planned "day of rage" in Saudi Arabia eased concern that the unrest would spread in the world's top oil exporter, prompting investors to unwind positions.
ICE April Brent crude fell 49 cents to $114.94 at 7am. It touched a 2.5-year high of $119.79 a barrel on February 24th as protests flared in Libya, disrupting oil output.
US crude for April delivery fell 73 cents to $101.97, after briefly falling by more than $1.
"We are getting a much needed correction; unless this day of rage really explodes, the momentum is on the downside," said Tony Nunan, a risk manager with Tokyo-based Mitsubishi Corp. "I think it's gone a little bit too far. Eventually it should go to $90 for WTI and $100 for Brent."
Saudi Arabia's capital was quiet ahead of a planned day of demonstrations that will test whether activists calling for reform online will succeed in taking their protests to the streets. Police fired in the air to disperse protesting Shia yesterday, and three people were injured in the melee.
The unrest in the Middle East has so far taken precedence over economic woes. Protests are also planned in other Gulf countries such as Yemen, Kuwait and Bahrain, after the day's religious prayers, inspired by upheavals in Tunisia and Egypt.
The influence of Libya's conflict on the oil market would probably diminish in coming days because traders had discounted the loss production from what used to be the world's 12th-largest oil exporter, said Serene Lim, an analyst at ANZ.
Buyers of Libyan crude have adapted to the disruption, sourcing supplies from elsewhere. Saudi Arabia has boosted production to 9 million barrels per day (bpd), partly to compensate for the lost output from the North African country.
"It seems that Libya is going to be sizeable but manageable with the current spare capacity and inventory level," Mr Nunan said.
The Saudis say the kingdom's spare capacity stands at 3.5 million bpd, most of the surplus held by the Organization of the Petroleum Exporting Countries.
Forces loyal to Libyan leader Muammar Gaddafi have entered the oil port of Ras Lanuf in the east of the country and are fighting insurgents for control of the town, rebels said.
Libyan rebels have lost momentum and are not likely to dislodge Muammar Gadafy from power, top US intelligence officials said on Thursday as Washington backed further away from military action.
Gadafy's son told rebels they faced a full-scale assault to crush their three-week-old uprising as forces intensified their counter-attack on the insurgent heartland, bombarding rebel positions in the oil port of Ras Lanuf and Brega, another rebel-held oil hub further east.
"As other countries, eg Iraq and Iran have shown, (oil) operations are usually resilient against all but the most devastating attacks and some resumption of output and processing is likely once the conflict leaves the locality of the facilities," said JP Morgan analysts headed by Lawrence Eagles.
Weaker economic indicators from China and a downgrade of Spain's credit rating are weighing on oil prices, Mitsubishi's Nunan said, as the impact of high energy costs are felt in the economy.
Japanese economics minister Kaoru Yosano said oil price rises are likely to have a substantial negative impact on the global economy.
Euro zone leaders are set to agree a "competitiveness pact" at a summit and will push Portugal to announce new reforms to boost market confidence as they seek to draw a line under the debt crisis.
Rising oil prices seem to be having a limited effect on consumption in China. China's refineries processed crude at a record rate in February, official data showed, as the world's second-largest oil consumer churned out more fuel to power irrigation work in drought-hit areas.
China's implied oil demand increased 10.3 percent from a year earlier to 9.54 million barrel per day in February, the second highest on record, Reuters calculations showed based on official data.
Eyes will also be on the impact of China's fight against inflation, with data published on Friday lending credence to the view that it is more than midway through a sustained campaign of monetary tightening launched nearly half a year ago.
Reuters
