* Brent trades below $115, about $5 away from 2-1/2 yr high
* Brent may briefly drop to $113.07/bbl-technicals
* Coming Up: API U.S. weekly inventory report
(Recasts with price fall, adds analyst comments)
By Alejandro Barbajosa
SINGAPORE, March 22 (Reuters) - Brent dropped by as much as
0.5 percent on Tuesday to stay below $115, as investors betting
oil prices would rise with western involvement in Libya's civil
war took profits in anticipation of a slowdown in air strikes.
Anti-aircraft fire rang out across Tripoli for a third night
on Monday, but strikes are likely to slow, a U.S. general said,
as Washington holds back from being sucked into the Libyan civil
war.
Oil had gained about 1 percent on Monday, the first day of
trading after U.N.-backed western powers kicked off the military
campaign in Libya.
Brent crude for May fell 33 cents to $114.63 a
barrel at 0722 GMT, after touching a high of $115.50 earlier --
less than $5 from a 2-1/2-year high near $120 hit last month.
U.S. crude for May , the most liquid contract before
the expiry of April later on Tuesday, shed 32 cents to $102.77.
"The market has recovered very much after the Japan crisis,
and for investors who had long positions at the period of
declining market, it's good for them to take profit now," said
Ken Hasegawa, a commodity derivatives manager at Japan's Newedge
brokerage.
"But I still think that the upward trend will continue.
There's the possibility of further disruptions (to supply) and
it's not easy to make a short position at the moment."
Prices have seesawed over the past week. They were first
pulled down by the immediate negative effect on energy demand
from Japan's strongest earthquake on record and investor
pessimism about the country's growth prospects.
But from the second half of last week, oil got a boost from
the realisation that hydrocarbons will have to compensate for
Japan's loss of nuclear generation capacity and from the
escalation of geopolitical tensions in North Africa and the
Mideast Gulf.
"It now seems likely that there will be a significant loss
of Libyan oil supplies for some time," said Ric Spooner, chief
market analyst at CMC Markets.
"This will reduce the buffer of excess capacity and increase
the oil market's vulnerability to any new supply shocks which
may emerge. This may see a risk premium being maintained in the
oil price for some time."
Libyan rebels, who had been driven back towards their
eastern Benghazi stronghold before the air attacks halted an
advance by Gaddafi's forces, have so far done little to
capitalise on the campaign -- raising fears the war could grind
to a stalemate.
Venezuela's Oil Minister Rafael Ramirez said there was no
need for an emergency OPEC meeting despite the military attacks
on Libya. Some of the group's members have already increased
production partly to compensate for the disruption to Libyan
supplies.
But turmoil is also reaching countries close to Saudi
Arabia, the world's top oil exporter and home to most of OPEC's
spare production capacity.
YEMEN, SYRIA UNREST
In Yemen, top generals, ambassadors and some tribes threw
their support behind anti-government protesters in a major blow
to President Ali Abdullah Saleh's efforts to ride out demands
for his immediate exit.
Meanwhile, unrest spread in southern Syria with hundreds of
people demonstrating against the government in three towns near
the main city of Deraa, but authorities did not use force to
quell the latest protests.
In Japan, smoke and steam rose from two of the most
threatening reactors at Japan's quake-crippled nuclear plant on
Tuesday, suggesting the battle to avert a disastrous meltdown
and stop the spread of radiation was far from won.
Away from the plant, mounting evidence of radiation in
vegetables, water and milk stirred concerns among Japanese and
abroad despite officials' assurances that the levels were not
dangerous.
Japan will allow the release of an additional 22 days worth
of crude oil from privately held reserves, the trade ministry
said. The trade ministry had already allowed the release of 1.26
million kilolitres from reserves, or three days worth of demand,
last week.
Also supportive to products values were analyst expectations
that weekly reports on U.S. oil inventories will show gasoline
and distillate stockpiles fell last week.
Industry group the American Petroleum Institute will publish
inventory statistics for the week ended March 18 on Tuesday,
followed by U.S. government data from the Energy Information
Administration on Wednesday.
(Editing by Himani Sarkar)
