UPDATE 9-Oil dips eyeing Libya turmoil, Saudi output

                                
 * 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, adds trading volume, detail throughout)
                                
 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 investors to pause 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]
                                
 Protests spread to oil producer Oman but had not yet
affected oil output from 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 has narrowed from last week's
record spread of $16.91. Brent's price rise has been stronger
because Europe is more vulnerable to supply disruptions from
Libya and the region.
                                
 U.S. crude <CLc1> fell 91 cents to settle at $96.97 a
barrel, slipping after reaching a high of $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.
                                
 Total U.S. crude trading volume was above 512,400 lots, 45
percent below the 30-day average of 929,140 lots, according to
Reuters data. Brent's volume just topped 396,300 lots, 22
percent below the 30-day average.
                                
 Saudi Aramco CEO Khalid al-Falih told reporters the demand
caused by violent unrest in Libya had been met. [ID:nLDE71R0DG]
                                
 Saudi Arabia is pumping around 9 million barrels per day
and has spare capacity of around 3.5 million bpd, a senior
Saudi source told Reuters, confirming a figure given by an
industry source last week. [ID:nLDE71O1KA] [ID:nLDE71O1KA]
                                
 Crude oil shipments from Libya were at a virtual standstill
because of reduced output and bad weather, according to
shipping sources. [ID:nLDE71R1RK]
                                
 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]
                                
 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.
                                
 Democracy activists in Saudi Arabia say the government is
monitoring social media to limit any protests. Activists have
set up Facebook pages calling for protests on March 11 and 20,
[ID:nLDE71R2EC]
                                
 Nearby Yemen's opposition rejected an offer of a unity
government, saying it would stand with protesters demanding an
end to the 32-year rule of President Ali Abdullah Saleh.
[ID:nLDE71R0LS]
                                
 The region's uncertainty limited any price pressure from
concerns about reports showing pending home sales fell in
January and a consumer spending rise that was the smallest in
seven months. [ID:nN28244438]
                                
 Geopolitics also trumped any effect from the weaker dollar,
usually supportive to dollar-denominated commodities by
reducing the cost to consumers using other currencies and lower
the value of greenbacks paid to producers.
 (Additional reporting by Gene Ramos in New York, Nia Williams
and Christopher Johnson in London and Florence Tan in
Singapore; Editing by Marguerita Choy)