Oil fell over US$3 on Thursday after the head of the Arab League said a peace plan for Libya, proposed by Venezuela President Hugo Chavez, was under consideration. Brent crude hit an intra-day low of $113.09 a barrel, down over $3 on the day, before recovering to near $115 by 0700 GMT. U.S. crude fell $1.15 cents to $101.08 at 0700 GMT, after hitting a high of $102.94. It had settled at $102.23 a barrel in the previous session, settling above $100 for the first time since September 2008. Arab League Secretary General Amr Moussa said on Thursday that the Chavez peace plan was "under consideration." News network Al Jazeera said earlier the plan would involved a commission from Latin America, Europe and the Middle East trying to reach a negotiated outcome between Libyan leader Muammar Gaddafi and rebel forces for this North African oil-producing country. "If there is a resolution that is seen as realistic to the market then that will weigh on prices," said Ben Westmore a commodities economist at the National Australia Bank. Revolt has ripped through the world's 12-largest exporter and knocked out nearly 50 per cent of its 1.6 million barrels per day (bpd) output. Oil is the bedrock for the country's economy, and on Wednesday fighting centred around a Libyan oil terminal. Concern the conflict might disrupt more Libyan output and that protest in the region may interrupt supply from other major producers in the region has spurred oil prices to two and half-year highs. Brent rose to near $120 a barrel on 24 February. "The stability of the region has gone through a major shock and the ripples are going to be felt for a while," said Carl Larry, president of Oil Outlooks and Opinions based in Houston. "Gaddafi might leave, the rebels could take over, but we still don't know who will then be in charge of those oil supplies ... and where next are we going to see unrest erupting." Libya, a member of the producer cartel OPEC, has lost about 700,000-750,000 barrels per day (bpd) of its normal output of 1.6m bpd as most of the industry's foreign workers had taken flight after the crisis began according to Shokri Ghanem, the head of the North African producer's state oil company. A drawn-out battle between rebels and pro-Gaddafi supporters in Libya could push crude oil prices above $130 a barrel, he said. "The market still sees the risk of contagion to neighbouring countries like Algeria which produced 1.2m barrels per day (bpd) in January," a BNP Paribas research note said. "Should Algeria be affected, OPEC's spare capacity stands to be significantly curtailed if it were to meet the additional shortfall in supply." The EIA said on Tuesday that prolonged disruption in Libyan oil exports could force the United States to compete more for supplies as Europe buys Algerian crude normally sent to the U.S. market. Governments in Yemen, Oman, Iran and Iraq have clashed with protesters seeking reforms as popular unrest has spread in the region holding more than 60 percent of the world's oil reserve. U.S. crude inventories fell last week as imports dropped, but stocks at the key delivery hub at Cushing, Oklahoma hit a record high, the EIA said in a report on Wednesday. Domestic crude stocks fell 364,000 barrels to 346.38 million barrels in the week to 25 February, government data showed, compared with expectations for a 700,000-barrel build in a Reuters poll of analysts. Inventories at the key Cushing terminal rose by 1.13m barrels to a record 38.57m barrels. Cushing is the delivery point for the New York Mercantile Exchange's benchmark West Texas Intermediate crude futures. "Fundamentally we have surplus oil in the United States and most of the OECD countries," said Jim Ritterbusch, president at Ritterbusch & Associates in Galena, Illinois. "It's very obvious that the market is being driven by a very different dynamic...geo-politics of the Middle East, and that is going to be in play for a long time
