(Corrects 12th paragraph to say Libyan output has fallen to
700,000-750,000 bpd)
* Arab League head says peace plan under consideration
* Revolt has wiped out nearly half of Libya's output
* Investors eye growing instability in MidEast, N. Africa
(Updates with prices, details)
By Luke Pachymuthu
SINGAPORE, March 3 (Reuters) - Oil fell over $3 on Thursday
after the head of the Arab League said a peace plan for Libya,
proposed by Venezuela President Hugo Chavez, was under
consideration.
Brent crude hit an intra-day low of $113.09 a
barrel, down over $3 on the day, before recovering to near $115
by 0700 GMT.
U.S. crude fell $1.15 to $101.08 at 0700 GMT, after
hitting a high of $102.94. It had settled at $102.23 a barrel in
the previous session, settling above $100 for the first time
since September 2008.
Arab League Secretary General Amr Moussa said on Thursday
that the Chavez peace plan was "under consideration."
News network Al Jazeera said earlier the plan would involved
a commission from Latin America, Europe and the Middle East
trying to reach a negotiated outcome between Libyan leader
Muammar Gaddafi and rebel forces for this North African
oil-producing country.
"If there is a resolution that is seen as realistic to the
market then that will weigh on prices," said Ben Westmore a
commodities economist at the National Australia Bank.
Revolt has ripped through the world's 12-largest exporter
and knocked out nearly 50 percent of its 1.6 million barrels per
day (bpd) output.
Oil is the bedrock for the country's economy, and on
Wednesday fighting centred around a Libyan oil terminal.
Concern the conflict might disrupt more Libyan output and
that protest in the region may interrupt supply from other major
producers in the region has spurred oil prices to 2-1/2 year
highs. Brent rose to near $120 a barrel on Feb. 24.
"The stability of the region has gone through a major shock
and the ripples are going to be felt for a while," said Carl
Larry, president of Oil Outlooks and Opinions based in Houston.
"Gaddafi might leave, the rebels could take over, but we
still don't know who will then be in charge of those oil
supplies ... and where next are we going to see unrest
erupting."
Oil output of Libya, a member of the producer cartel OPEC,
has fallen to 700,000-750,000 barrels per day (bpd) as most of
the industry's foreign workers had taken flight after the crisis
began, according to Shokri Ghanem, the head of the North African
producer's state oil company. .
A drawn-out battle between rebels and pro-Gaddafi supporters
in Libya could push crude oil prices above $130 a barrel, he
said.
"The market still sees the risk of contagion to neighbouring
countries like Algeria which produced 1.2 million barrels per
day (bpd) in January," a BNP Paribas research note said.
"Should Algeria be affected, OPEC's spare capacity stands to
be significantly curtailed if it were to meet the additional
shortfall in supply."
The EIA said on Tuesday that prolonged disruption in Libyan
oil exports could force the United States to compete more for
supplies as Europe buys Algerian crude normally sent to the U.S.
market.
Governments in Yemen, Oman, Iran and Iraq have clashed with
protesters seeking reforms as popular unrest has spread in the
region holding more than 60 percent of the world's oil reserve.
FUNDAMENTALS
U.S. crude inventories fell last week as imports dropped,
but stocks at the key delivery hub at Cushing, Oklahoma hit a
record high, the EIA said in a report on Wednesday.
Domestic crude stocks fell 364,000 barrels to 346.38 million
barrels in the week to Feb. 25, government data showed, compared
with expectations for a 700,000-barrel build in a Reuters poll
of analysts.
Inventories at the key Cushing terminal rose by 1.13 million
barrels to a record 38.57 million barrels. Cushing is the
delivery point for the New York Mercantile Exchange's benchmark
West Texas Intermediate crude futures.
"Fundamentally we have surplus oil in the United States and
most of the OECD countries," said Jim Ritterbusch, president at
Ritterbusch & Associates in Galena, Illinois.
"It's very obvious that the market is being driven by a very
different dynamic...geo-politics of the Middle East, and that is
going to be in play for a long time."
(Editing by Ed Lane)
