* Arab media say Gaddafi looking for agreement to step down
* Brent's premium over WTI shrinks to $10 from $17 last week
* Algerian oil minister says market well supplied
* Coming Up: API U.S. oil inventory report; 2130 GMT
(Adds analyst comments on WTI/Brent spread)
By Alejandro Barbajosa
SINGAPORE, March 8 (Reuters) - Brent crude fell below $115
on Tuesday on reports Libyan leader Muammar Gaddafi was looking
for a way to step down and end the fighting that has slashed the
nation's oil exports, while OPEC's assurances of supply also
soothed investors.
As much as 1 million barrels of Libyan output has been
disrupted by clashes between Gaddafi and rebels, or about
two-thirds of normal production. That is equivalent to just
above 1 percent of global daily consumption.
Two Arab newspapers and al Jazeera television said on Monday
Gaddafi was looking for an agreement allowing him to step down,
but there was no official confirmation of the reports.
ICE Brent crude for April shed 40 cents to $114.64 a
barrel at 0522 GMT, after hitting $119.79 on Feb. 24, the
highest intra-day price since 2008.
"I'm not surprised that Brent is running a little bit out of
steam," said Matthew Lewis, an analyst at CMC Markets in Sydney.
"In terms of the Libyan crisis, there is a lot of
speculation that perhaps Gaddafi is looking to extradite
himself. That may put an end to the crisis and the oil price
would fall fairly rapidly."
Algerian Oil and Energy Minister Youcef Yousfi told Reuters
the market remained well supplied despite the cut in Libyan
exports and OPEC members had no plans to meet for now.
"I think it is more psychological effect than physical
deficit of oil in the market," he said. "I don't think really
there is a deficit."
U.S. crude closed above $105 on Monday, its highest since
September 2008, buoyed by traders who sold Brent and bought West
Texas Intermediate, unwinding a popular trade that had blown out
to a record $17 a barrel last week.
On Tuesday, U.S. crude slid 37 cents from the
2-1/2-year peak to $105.07. The Brent/WTI <CL-LCO1=R> spread has
shrunk by more than $7 since last week's record, ending Monday
at its narrowest since January.
"There has been quite a large disparity between Brent and
WTI, and that has come to the attention of traders as an
opportunity to buy the WTI and sell the Brent on the expectation
that the disparity will subside," Lewis of CMC said.
Concern has prevailed that violence and supply disruptions
may spread to other countries in the region amid the Libyan
turmoil.
But so far oil is flowing as usual from the world's biggest
producers in the Mideast Gulf. Saudi Arabia, the world's top
exporter and home to most of OPEC's spare capacity, has
increased production to about 9 million barrels per day.
"The massive spike that we've seen in the price of oil has
literally been driven by the geopolitical concern. As soon as
those short-term speculative motives are removed from the
market, I expect to see a sharp drop in crude prices to below
$100 and traders to focus on fundmantals again," Lewis said.
If crude oil prices stay high for an extended time, analysts
said, Asian countries from China to India might not be able to
sustain the growth pace that has driven the global economy.
Major U.S. oil companies have halted trade with Libya and
big banks have started to pull back from funding such deals
because of U.S. sanctions, in moves that will further disrupt
oil flows from the torn country.
Major Libyan oil ports Ras Lanuf and Brega in the east of
the country are closed as violence in the area has hampered
operations at the terminals, shipping sources said on Monday.
But a coordinated release of strategic oil stocks by OECD
economies is not yet needed because the oil supply disruption
caused by an uprising in Libya remains limited on a global
scale, the International Energy Agency (IEA) said on Monday.
The White House said on Monday the price of oil was one
factor -- but not the only factor -- that would be used when
determining whether the United States will tap its strategic oil
reserve.
U.S. crude oil stockpiles could have risen by 300,000
barrels last week as imports likely rose, a preliminary Reuters
poll ahead of weekly inventory reports showed on Monday.
The industry group American Petroleum Institute (API) will
issue its weekly inventory report on Tuesday, at 2130 GMT,
followed by government statistics from the U.S. Energy
Information Administration on Wednesday, at 1530 GMT.
