* U.S. President Obama says Osama Bin Laden is dead
* U.S. crude off 31-month peak, Brent near $125
* Silver plunges 10 pct, gold drops from record
(Adds Obama address, detail, context and comments)
By Alejandro Barbajosa
SINGAPORE, May 2 (Reuters) - Oil prices fell by 1 percent on
Monday on news that U.S. forces had killed al-Qaeda leader Osama
Bin Laden, after a decade of counter-terrorism efforts that
deepened U.S. military involvement in central Asia and the
oil-rich Middle East.
President Barack Obama said Bin Laden was killed in Pakistan
on Sunday. The U.S. is in custody of his body. []
ICE Brent crude for June <LCOc1> fell 78 cents to $125.11 a
barrel at 0413 GMT, after shedding as much as $1.24 to $124.65.
It was still within $2 of last month's 32-month high above $127.
U.S. crude <CLc1> slid 95 cents to $112.98.
Participants in the oil market focused on whether the news
would help unwind the risk premium attached to prices because of
war in Libya and unrest in the Middle East and North Africa.
"There's probably a knee-jerk reaction to the extent that
part of the geopolitical risk has been supported by al-Qaeda, so
there will be an initial sell-off," said Jeremy Friesen,
commodity strategist at Societe Generale, adding that the effect
of the news on prices may wane later this week.
"Al-Qaeda is still a threat and it's independent from Bin
Laden, but I think to the extent that he has been an important
rallying point for that ideology, it's a positive."
Oil was already down before the news about Bin Laden, after
NATO air strikes over the weekend killed one of Libyan leader
Muammar Gaddafi's sons and industry sources said that Saudi
Arabia raised output in April.
Gaddafi's youngest son and three grandchildren were killed
in a NATO air strike, the Libyan government said on Sunday.
Britain said that while it was not targeting the leader, it was
homing in on the regime's military machine. []
"What's happening in Libya is probably an event that will
see Gaddafi moved out of his position, so the risk premium which
relates to Middle East concerns will start to erode," said
Jonathan Barratt, managing director at Commodity Broking
Services in Sydney, estimating that premium at about $18.
Saudi Arabia's crude oil output edged back up in April to
around 8.5 million barrels per day (bpd) from roughly 8.3
million bpd in March as demand picked up, Saudi-based industry
sources said on Sunday. []
"Saudi Arabia has increased production, we know that the
dollar is slightly better bid and you have big movements in the
precious metals markets," Barratt said.
The dollar strengthened by about 0.25 percent on Monday
following last week's slide, deterring investors from piling
into commodities this week and triggering a 10 percent plunge in
spot silver prices.
Last week's Federal Reserve reassurance that economic
stimulus would continue boosted U.S. crude to above $114 on
Friday, the highest since September 2008, and gold to a record
earlier on Monday.
Money managers increased their bets on higher U.S. crude oil
prices to a combined record level in New York and London in the
week to April 26, data from the CFTC showed on Friday, as U.S.
prices rose to their highest level since September 2008.
[]
On the New York Mercantile Exchange alone, net-long crude
futures and options positions rose by 11,202 to 301,118, the
Commodity Futures Trading Commission said on Friday, just shy of
an all-time high of 311,632 reached in March. []
Volatility and uncertainty due to the pan-Arab protests and
Libya's conflict have tempered oil trading. The U.S. 30-day
average volume was down by nearly 130,000 lots compared with the
250-day average at the end of last week, Reuters data showed.
A holiday in parts of Asia, Europe and Latin America on
Monday was also set to stifle trade.
(Editing by Michael Urquhart)
