* Venezuelan proposal to end Libya crisis unlikely to
succeed
* Airstrike on rebel town in Libya drives Brent above $116
* Shi'ites in Saudi Arabia protest in oil-rich East
* Coming Up: U.S. Feb non-farm payrolls, 1330 GMT
(Adds response of Libya rebels, updates prices)
By Nick Trevethan and Florence Tan
SINGAPORE, March 4 (Reuters) - Brent oil rose above $116 a
barrel on Friday on reports of air strikes against a rebel
stronghold in Libya, raising fears that the crisis could spread
to other oil producers in the Middle East.
A Libyan warplane bombed just beyond the walls of a military
base held by rebels in the eastern town of Ajdabiyah on Friday
but did not hit it, rebels said.
Forces opposed to Muammar Gaddafi said they were preparing
for counterattacks by troops as both sides struggled for control
of a strategic coastal road and oil industry facilities.
Markets are concerned the fighting in North Africa could
spread to other oil producers, including key exporter Saudi
Arabia, where Shi'ites staged protests in two towns in the
nation's oil-producing Eastern Province on Thursday, demanding
the release of prisoners.
Venezuelan President Hugo Chavez said on Thursday Gaddafi
had agreed to proposals for an international panel to negotiate
an end to the turmoil in the world's 12th largest oil exporting
nation.
But a rebel leader rejected talks, the response from the
Arab League was lukewarm and energy analysts consulted by
Reuters said they saw little chance any Chavez-backed plan would
succeed.
"It is unrealistic. Nobody believes that Chavez's idea would
be workable," said Tetsu Emori, a Tokyo-based commodities fund
manager at Astmax Investments.
Brent crude futures for April delivery rose $1.16 to
$115.95 a barrel by 0844 GMT. Earlier Brent touched $116.20,
about $3.60 off the 2-1/2 year peak struck on Feb 24.
U.S. crude futures for April rose 89 cents to $102.80
a barrel and earlier touched $103.03. Both contracts are on
track to post a second straight weekly rise.
Libya's oil output has fallen to 700,000-750,000 barrels per
day from normal levels of 1.6 million bpd as most foreign oil
workers had taken flight, according to Shokri Ghanem, the head
of Libya's state-owned oil company.
Kaustav Mukherjee, a director at the Boston Consulting
Group, said: "Unless the (peace) plan lays out ways to address
the core issues in Libya, it'll probably meet with a lot of
publicity, but little else.
"I feel, more than the peace plan, the direction that UN
sanctions could take in the long run will impact the economy of
Libya more and consequently its oil industry."
Open interests in U.S. crude futures have been on the rise
in recent sessions, nearing record highs as bullish investors
position themselves for further supply shocks.
That has also driven technical indicators into overbought
territory with the relative strength indicator at 75 for Brent
and 74 for WTI. A read above 70 denotes a market is overbought.
"Even if the conflict there were to be peacefully resolved
-- which seems a long shot -- there are flash-points in Egypt,
Tunisia, Yemen and Bahrain to consider," Peter Beutel, president
of U.S. trading advisory Cameron Hanover said in a March 3 note.
This has increased the pressure to liquidate positions at
some stage although traders are likely to buy back on dips as
the turmoil in the Middle East and Africa could last for months,
Astmax's Emori said.
This would support prices above $100 and probably Brent will
head to $150 a barrel within a year, he added.
That sell-and-buy back behaviour was very much in evidence
on Thursday when the initial news of the Chavez plan sent Brent
sliding by more than $3 to a low of $113.09 in the space of an
hour or so, but prices quickly recovered, and the market ended
the day down $1.56.
A fall in U.S. jobless claims to the lowest level in more
than 2-1/2 years has also underpinned oil prices.
U.S. nonfarm payrolls data due later on Friday are expected
to have risen in February after being held down by extreme
winter weather in January.
Employment is expected to have increased by 185,000, which
would be the largest gain in almost a year.
"If we start adding workers - and productivity continues to
improve -- it could be a remarkable achievement," Cameron's
Beutel said.
"What worries us is how much more consumers have had to pay
for oil since early September."
(Editing by Clarence Fernandez)
