* U.S. President Obama says Osama Bin Laden is dead
* Brent crude falls as much as 1 pct to $124.65/bbl
* Saudis raised output to 8.5 mln bpd in April -sources
* Libya: one of Gaddafi's sons killed by NATO raid (Adds analyst comments, background on oil industry attack)
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 American military involvement in central Asia and the oil-rich Middle East.
President Barack Obama said Saudi-born Bin Laden was killed in Pakistan on Sunday. The U.S. is in custody of his body. 
ICE Brent crude for June <LCOc1> fell $1.14 to $124.75 a barrel by 0530 GMT, after shedding as much as $1.24 to $124.65. It was still about $2 off last month's 32-month high above $127. U.S. crude <CLc1> slid $1.26 to $112.67.
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 might 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."
The focus was also on potential retaliation by al-Qaeda. The U.S. Department of Homeland Security (DHS) and the FBI have not issued any warning of a credible or imminent threat, but Obama warned Americans to remain vigilant.
"It is not clear that Bin Laden's death will lead to a meaningful or lasting change in geopolitical risk," said Ric Spooner, chief market analyst at CMC Markets.
"To the extent that Bin Laden was a symbolic rallying point for the wider forces of terrorism, there may in fact be some increased risk of retaliation in the near future."
Economists including David Cohen from Action Economics warned that in the near term Bin Laden's killing might trigger a violent response by al-Qaeda, but analysts said it was unlikely the network would succeed in disrupting oil supplies.
The closest al-Qaeda has been to hitting the oil industry was on Feb. 24, 2006, when Saudi forces repelled a suicide attack on the Abqaiq oil-processing center, the world's largest.
"Over the last ten years, al-Qaeda has substantially weakened," said Ben Westmore, commodities economist at the National Australia Bank. "I don't think they will be successful at carrying out an attack on an oil facility."
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 more than 0.33 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 Clarence Fernandez)