Brent crude fell towards $126 today while US crude futures slipped after touching a 2.5-year high as the African Union said Muammar Gadafy had accepted a roadmap to end the civil war in Libya.
South African president Jacob Zuma, who led a delegation of African leaders at talks in Tripoli, met Col Gadafy for several hours. The issue of Col Gadafy's stepping down had also been discussed, the African Union said.
The conflict in Libya has cut the country's 1.6 million barrels per day oil output by around 80 per cent, with much more of an impact on Europe-biased Brent oil prices than US crude.
ICE Brent crude for May fell 63 cents to $126.02 a barrel by 0635 GMT after hitting an intraday low of $125.54.
The contract surged on Friday to settle above $126 a barrel, the highest level in 32 months, as commodities rallied due to a weaker dollar and continued fighting in Libya.
US crude for May delivery fell 11 cents to $112.68 a barrel after rising as high as $113.46 earlier, the highest since September 22nd, 2008.
Peace talks in Libya are "definitely going to weigh on the oil market," ANZ analyst Serene Lim said.
"We have seen quite a strong rally last Friday," she said, adding that prices could be "consolidating and taking a breather".
Top oil exporter Saudi Arabia also weighed in to calm prices, reiterating its position during the weekend that its "huge" spare output capacity allows it to meet any rise in demand or drop in supplies.
The country would have "no problems" producing at its claimed 12.5 million barrels per day (bpd) capacity if the market needed the oil, a senior Gulf source said.
The market was also watching the outcome of a bailout for Portugal which could be bearish for oil if it does not go smoothly, Lim said.
European Union finance ministers on Saturday urged Portugal to commit to reforms and defended the region's austerity steps as tens of thousands of European workers protested in Budapest against spending cuts.
Unrest in other parts of Africa and in the Middle East that could disrupt oil supplies is still a key concern among investors.
Oil could rise more if US companies post good earnings, showing a strong economic recovery in the world's largest oil consumer, analysts said.
"I don't see any factors to push the market down," Ken Hasegawa, commodities sales manager at Newedge Japan said. "Oil is on its way to the historical high of $147."
Reuters
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