UPDATE 7-Oil falls on signs of slowing demand

                                
 * Sources-Saudi Arabia cuts oil production to 8.5 mln bpd
                                
 * IEA warns sky-high prices could crimp growth
                                
 * Technicals show retracements for both benchmarks [TECH/C]
                                
 * Coming up: OPEC monthly report, API data at 2030 GMT
                                
 
                                
 (Recasts, updates prices)
                                
 By Zaida Espana
                                
 LONDON, April 12 (Reuters) - Oil prices fell on Tuesday
after sources said slower demand had led top exporter Saudi
Arabia to cut back production and the International Energy
Agency warned that strong prices could be eroding demand.
                                
 ICE Brent crude futures for May <LCOc1> were 59 cents lower
at 123.41 a barrel by 1315 GMT, albeit off earlier lows of
$121.97 earlier in the session. 
                                
 U.S. crude for May delivery <CLc1> fell by $1.74 to $108.18
a barrel, off earlier lows of $107.87.
                                
 Sources told Reuters that Saudi Arabia, which has the
largest spare capacity production cushion in the Organisation of
Petroleum Exporting Countries (OPEC), had trimmed production by
around 500,000 barrels per day to around 8.5 million bpd on the
back of slow demand. [ID:nLDE73B0TH]
                                
 Investors that bought into the oil market in the past few
months could now be taking a chance to exit, according to
Brendan Brown, head of economic research at Mitsubishi UFG
Securities.
                                
 "I think we are going to see some sort of a rotation, with
some investors deciding to get out and take some profit," Brown
told Reuters.
                                
 Saudi Arabia's production cuts comes amid growing fears that
strong crude oil prices are denting demand growth. The IEA, the
West's energy policy adviser, earlier warned prices could
ultimately self-regulate through a global economic slowdown.
[IEA/M]
                                
 Despite the warnings, analysts said the agency had kept its
forecasts unchanged, noting that a flat reading of Saudi Arabian
production raised questions about spare capacity.
                                
 "The IEA shows no rise in their estimate for Saudi Arabia's
crude production in March at a flat 8.9 million barrels per
day," BNP Paribas' head of commodity markets strategy Harry
Tchilinguirian said.
                                
 "This in turn may raise questions in terms of Saudi Arabia's
willingness, ability or pricing policy to deliver extra barrels
onto the market."
                                
 The agency said prices of $100 per barrel or above could
prove incompatible with the expected pace of economic recovery.
The IEA's warning on prices followed a note from long-term
commodity bull Goldman late on Monday advising clients to take
profit. [ID:nN11117735]
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 DEMAND CONCERNS
                                
 Societe Generale also weighed into the demand destruction
debate, highlighting gasoline in the United States as probably
the first casualty.
                                
 "In the U.S., where low taxes on refined products for
end-users cause a rapid and direct pass-through of underlying
costs, the focus on increasing gasoline prices has been intense
in both the business and general media," the bank's analysts
wrote in a note. "This has driven mounting concerns in the oil
markets about 'demand destruction' in the U.S."
                                
 "Geopolitics (are) still critical," SG analysts said in the
report. "But with prices high, markets may be having doubts on
demand."
                                
 Demand concerns also heightened in No. 3 oil consumer Japan,
where the evacuation zone around its damaged nuclear plant was
expanded because of high levels of accumulated radiation, as a
strong aftershock rattled the area. [ID:nLDE73B066]
                                
 In the United States, demand has moved sideways, according
to SocGen. "When compared to an increasing trend for the first
three quarters of last year, this means that demand growth has
faded to zero over the course of the first quarter."
                                
 Weekly oil inventory reports from industry group the
American Petroleum Institute (API) will offer a fresh snapshot
of U.S. demand and stockpiles at 2030 GMT.
                                
 Analysts surveyed on Monday expected crude stocks to have
risen last week, with distillate stocks dipping and gasoline
stocks dropping. [EIA/S]
                                
 The U.S. Commodity Futures Trading Commission said that as
of last Tuesday, hedge funds and other financial traders held a
total net-long positions in U.S. crude contracts equivalent to a
near record 267.5 million barrels. [CFTC/]"
 (Additional reporting by Ikuko Kurahone and Dmitry Zhdannikov
in London and Chikako Mogi and Risa Maeda in Tokyo; editing by
Keiron Henderson and Jane Baird)