UPDATE 10-Oil falls from 32-month high on demand concerns

                                
 * Goldman sees risk oil prices could fall
                                
 * African plan fails to halt Libya fighting
                                
 * Average U.S. gasoline prices near $4/gallon - survey
                                
 * Coming up: MasterCard fuel demand data 2 p.m. EDT Tues
 (Updates with Brent settlement)
                                
 By Robert Gibbons
                                
 NEW YORK, April 11 (Reuters) - Oil dropped more than 2
percent on Monday, falling from 32-month highs on concerns that
rising fuel costs will erode demand and threaten economic
recovery.
                                
 Analysts and brokers pointed to overbought technicals along
with mounting concerns about demand, highlighted by Goldman
Sachs telling clients there is a strong chance commodity prices
may reverse and recommending they take profits.
[ID:nN11303064]
                                
 Goldman as well as fuel price tracker Trilby Lundberg
pointed to demand destruction from high gasoline prices.
                                
 Brent and U.S. crude felt pressure early when the African
Union said Muammar Gaddafi had accepted a roadmap to end
Libya's civil war, including an immediate ceasefire, though
rebels said any settlement would require Gaddafi step down.
[ID:nLDE7390JP]
                                
 But Gaddafi's forces continued to shell the besieged town
of Misrata, and a NATO official said government armour would be
targeted as long as it threatened civilians. [ID:nLDE73A14C]
                                
 Brent crude for May <LCOc1> fell $2.67 to settle at $123.62
a barrel, dropping as low as $123.50 in post-settlement
trading, after reaching a 32-month peak of $127.02.
                                
 U.S. crude <CLc1> fell $2.87 to settle at $109.92, pulling
back after reaching an early $113.46 peak, the highest intraday
price since September 2008.
                                
 "Technicals indicated crude was overbought, with RSI
(relative strength index) for both Brent and WTI over 70 this
morning," said Richard Ilczyszyn, senior market strategist at
Lind-Waldock in Chicago.
                                
 The 14-day RSI, a measure of whether a contract is
overbought or oversold, approached 80 on Friday for Brent,
according to Reuters data. [ID:nN08204539] A reading above 70
is considered overbought, while anything under 30 is oversold.
                                
 PRICE THREAT TO DEMAND
                                
 The average U.S. retail gasoline price moved closer to $4 a
gallon, jumping more than 19 cents since mid-March to a level
less than 10 percent below its all-time high, according to the
widely followed Lundberg Survey. [ID:nN10294003]
                                
 Goldman cited "nascent signs of oil demand destruction in
the United States" and to speculative length, along with the
possibility of a Libya ceasefire and Nigeria's elections that
have thus far not resulted in unusual supply disruptions.
[ID:nN11303064]
                                
 The International Monetary Fund warned in its World
Economic Outlook that soaring oil prices and inflation in
emerging economies pose risks to the world economy but are not
yet strong enough to derail it. [ID:nLDE73A1OT]
                                
 Demand concerns also remain over Japan, which expanded the
evacuation zone around its damaged nuclear plant because of
high levels of accumulated radiation, as a strong aftershock
rattled the area one month after a massive quake and tsunami.
[ID:nLDE73A126]
                                
 Weekly oil inventory reports will offer a fresh snapshot of
U.S. demand and stockpiles. Analysts surveyed on Monday
expected crude stocks to have risen last week, with distillate
stocks dipping and gasoline stocks dropping. [EIA/S]
                                
 Oil data from industry group the American Petroleum
Institute is due at 4:30 p.m. EDT (2030 GMT) on Tuesday.
                                
 POTENTIAL THREATS TO SUPPLY
                                
 Analysts remain skeptical about the prospect for any Libyan
peace deal. Commerzbank's Carsten Fritsch said: "We have seen
such peace plans before ... Unless Gaddafi steps down I think
there is little room for discussion from the rebel side."
                                
 With Libyan production curbed sharply, Saudi Arabia is
still expected to fill any supply gap, which makes unrest and
protests in regional neighbors Yemen, Bahrain, and Syria and
revived unrest in Egypt, that much more unsettling.
                                
 A senior Gulf source dismissed doubts among analysts about
Saudi Arabia's claimed 12.5 million barrels per day capacity as
the work of speculators trying to manipulate oil prices.
[ID:nLDE7390C0]
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 Libya graphics             
http://link.reuters.com/neg68r
                                
 Interactive graphic        
http://link.reuters.com/puk87r
                                
 Reuters Insider-Doomsday Scenarios for Oil:
                                
 http://link.reuters.com/ner88r
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 (Additional reporting by Gene Ramos in New York, Claire
Milhench in London and Florence Tan in Singapore; Editing by
Dale Hudson)