* Brent premium to U.S. crude drops below $10/bbl
* Libya turmoil, worries about region still supportive
* Coming up: API oil inventory data Tuesday
(Recasts, updates market activity, adds details)
NEW YORK, March 7 (Reuters) - Brent crude oil prices fell
more than 1 percent on Monday, reversing steep early gains as
traders assessed efforts to stem the conflict in Libya and took
profits in Brent's unprecedented premium to U.S. futures.
U.S. crude closed at its highest in 2-1/2 years, buoyed by
traders who sold Brent and bought WTI, unwinding a popular
trade that had blown out to a record $17 a barrel last week.
The Brent/WTI <CL-LCO1=R> spread has shrunk by more than $7
since then, ending Monday at its narrowest since January.
Trading was volatile, with investors first reacting to
attacks by Libyan ruler Muammar Gaddafi's supporters to retake
an oil hub from rebels. Then selling kicked in on a report that
Gaddafi was seeking a deal to secure a safe exit.
Al-Jazeera later reported rebel leaders had rejected the
offer. []
Brent crude futures for April delivery <LCOc1> fell 93
cents to settle at $115.04 a barrel, pulling back from a
session high of $118.50.
U.S. crude futures for April delivery <CLc1> rose $1.02 to
settle at $105.44, the highest close since September 2008. But
U.S. gasoline <RBc1> and heating oil <HOc1> futures ended
lower, slumping with the Brent contract.
"The WTI-Brent spread is starting to unwind, but the Libya
fighting and concerns about Saudi Arabia and the region
remain," said Richard Ilczyszyn senior market strategist at
Lind-Waldock in Chicago.
Brent's premium to its U.S. counterpart <CL-LCO1=R> fell
$1.57 cents to end post-settlement trading at $9.75 a barrel,
narrowing for a third day after two months of unprecedented
volatility caused by expectations of a long-term glut of
landlocked U.S. crude.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Reuters Insider: John Kozey says crude set for pullback
http://link.reuters.com/dud48r
FACTBOX on emergency oil stockpiles: []
Graphics on U.S. strategic oil reserve, U.S. and other IEA
nations reserves: http://link.reuters.com/cah48r
Graphics showing:
Middle East unrest http://r.reuters.com/nym77r
Oil price shocks http://r.reuters.com/qes28r
Countries most reliant on oil http://r.reuters.com/dux28r
OECD commercial oil stocks http://link.reuters.com/qyg48r
Brent and WTI open interest http://r.reuters.com/cag48r
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
LIBYA TURMOIL
Oil prices have surged $12 in just over two weeks as Libyan
protests turned into open warfare threatening to leave a
lasting scar on the oil sector, also fueling fears unrest could
spread to top producers like Saudi Arabia.
The outlook for Libyan production remained uncertain.
Government forces seeking to dislodge rebels from Libya's
strategically important coast struck at the Ras Lanuf oil town
while Britain and France said they were seeking U.N. authority
for a no-fly zone. []
News that U.S. companies have quit trading in Libyan oil at
all due to U.S. sanctions further complicated matters. This
raised the risk that even the estimated 600,000 barrels per day
(bpd) of crude still being produced -- about one-third of the
norm -- might struggle to find buyers. []
A leader of Libya's ruling establishment appealed to rebel
leaders for dialogue, the clearest sign yet Gaddafi may be
ready to compromise with opponents challenging his rule. Rebel
leaders dismissed the offer. []
NATO has begun 24-hour surveillance of Libya with
reconnaissance aircraft as the alliance plans potential steps
to address the unrest, the U.S. ambassador to NATO said.
[]
Oil traders also remained on heightened alert for signs of
further unrest in other producers, particularly Saudi Arabia,
amid sectarian strife in neighbors like Bahrain.
Saudi Arabia's security forces detained at least 22
minority Shi'ites who protested last week against
discrimination, activists said on Sunday, as the kingdom tried
to keep the wave of Arab unrest outside its borders.
[]
STRATEGIC RESERVE OPTIONS
While prices remain volatile, Brent has traded between $112
and $117 for most of the past week, and both OPEC nations and
producer countries are taking a wait-and-see approach before
taking any further action to curb prices.
OPEC ministers are holding informal consultations, but not
planning an emergency meeting ahead of the next scheduled
gathering in June, an OPEC delegate said. Saudi Arabia has said
it has increased production significantly. []
And a senior IEA official reiterated that a coordinated
release of strategic oil stocks was not yet needed because the
Libya supply disruption is not that big. []
In Washington, officials repeated that releasing the
Strategic Petroleum Reserve was one option being considered,
but that the government would look at other factors beyond
price when making a decision. []
(Reporting by Robert Gibbons in New York, Alex Lawler and
Karolin Schaps in London and Alejandro Barbajosa in Singapore;
Editing by David Gregorio)
