UPDATE 8-Oil edges lower as traders eye Libya turmoil

                                
 * Foreign powers accelerate moves to oust Libya's Gaddafi
                                
 * Saudi Aramco says has filled supply gap from Libya
                                
 * Oman latest oil producer to be hit by protests
 (Recasts, updates prices, market activity to settlement)
                                
 By Robert Gibbons
                                
 NEW YORK, Feb 28 (Reuters) - Oil prices fell on Monday in
volatile trading as expectations that increased production from
Saudi Arabia can offset supply disruptions in the region
allowed wary investors to take a breather after Libya's turmoil
sent prices to 2-1/2-year peaks last week.
                                
 Some of the lightest trading volume of the year indicated
investor weariness, but also helped make for choppy trading and
wide trading ranges.
                                
 Foreign powers accelerated efforts to help oust Libyan
leader Muammar Gaddafi as rebels fought government forces
trying to take back strategic coastal cities. [ID:nLDE71Q0MP]
                                
 Regional protests spread to oil producer Oman, although oil
flow had not been affected, with protesters demanding jobs and
political reforms blocking roads to a main port in the north of
the Gulf Arab sultanate. [ID:nLDE71R041]
                                
 "The Saudis are supposedly producing more but on the
supportive side there is still the uncertainty about how much
the unrest in Africa and Middle East will spread and how long
Libya's oil will be shut off," said Chris Dillman, analyst at
Tradition Energy in in Stamford, Connecticut
                                
 Brent crude futures for April <LCOc1> fell 34 cents to
settle at $111.80 a barrel, well off its $114.50 intraday
peak.
                                
 But Brent still finished 10.68 percent higher for the
month, its biggest percentage rise since May 2009 when prices
jumped 29 percent.
                                
 Brent's premium to its U.S. counterpart <CL-LCO1=R>
remained nearly $15 a barrel, but narrowed from last week's
record above $16.
                                
 U.S. crude <CLc1> fell 91 cents to settle at $96.97 a
barrel, slipping after reaching $99.96 intraday. U.S. crude
posted a 5 percent monthly gain, biggest since December 2010.
                                
 "A failed rally at the $100 area appeared to reduce buying
interest as the market enters a wait-and-see mode as far as
fresh Libyan developments are concerned," said Jim Ritterbusch,
president at Ritterbusch & Associates in Galena, Illinois.
                                
 Saudi Aramco CEO Khalid al-Falih told reporters the demand
caused by violent unrest in Libya had been met. [ID:nLDE71R0DG]
                                
 Crude oil shipments from Libya were at a virtual standstill
because of reduced output and bad weather, according to
shipping sources. [ID:nLDE71R1RK]
                                
 Thorbjrn Bak Jensen of Global Risk Management said the
situation in the Middle East and North Africa remained volatile
and the outlook for prices unclear.
                                
 "If Saudi Arabia starts to rumble, $120 per barrel is
cheap. If not, and (Muammar) Gaddafi leaves and peace and quiet
spread in the involved countries, $120 is expensive," he said.
                                
 Also tempering the view that the Libya supply disruption
would be short-lived was a Bank of America Merrill Lynch
warning output could be reduced for months. [ID:nLDE71R19V]
 (Additional reporting by Nia Williams and Christopher Johnson
in London and Florence Tan in Singapore; Editing by Marguerita
Choy and David Gregorio)