Oil prices fell on Monday in choppy trading, pulling back after surging to 32-month peaks last week when the dollar swooned and as investors warily eyed an African Union plan to halt Libya's conflict.
Brent and U.S. crude felt pressure when the African Union said Libyan leader Muammar Gaddafi had accepted a roadmap to end the civil war, including an immediate ceasefire, though rebels said any settlement would require Gaddafi step down.
But Gaddafi forces continued to shell the besieged town of Misrata, and a NATO official said Gaddafi's forces would be targeted as long as they threatened civilians.
Profit-taking after last week's price gains and the dollar's early strength on Monday weighed on oil and other commodities. Relief that the U.S. government had avoided a shutdown, however, gave way to concerns about the debate on the debt ceiling, limiting the greenback's rebound.
Brent crude for May fell $1.59 to $125.06 a barrel by 12:21 p.m. EDT, dropping as low as $124.54 after reaching a 32-month peak of $127.02.
U.S. crude fell $1.96 to $110.83, pulling back after reaching an early $113.46 peak, the highest intraday price since September 2008.
LIBYA AND MIDDLE EAST UNREST
Analysts remain skeptical about the prospect for any Libyan peace deal. Commerzbank's Carsten Fritsch said: We have seen such peace plans before ... Unless Gaddafi steps down I think there is little room for discussion from the rebel side.
With Libyan production and exports curbed, Saudi Arabia is still seen as having capacity to fill any supply need, even as unrest and protests in Saudi neighbor Yemen, Bahrain, and Syria continued and were revived in Egypt.
A senior Gulf source dismissed analyst doubts about Saudi Arabia's claimed 12.5 million barrels per day (bpd) capacity as the work of speculators trying to manipulate oil prices.
PRICE THREAT TO DEMAND
The threat to demand from rising U.S. gasoline prices also was cited by brokers and analysts as helping drag crude lower.
The average U.S. retail gasoline price moved closer to $4 a gallon, jumping more than 19 cents since mid-March to a level less than 10 percent below its all-time high, according to the widely followed Lundberg Survey.
The International Monetary Fund warned in its World Economic Outlook that soaring oil prices and inflation in emerging economies pose dangerous new risks to the world economy.
But later, IMF Chief Economist Olivier Blanchard told reporters the IMF did not believe that rising commodity prices would derail the global economic recovery.
Demand concerns also remain over Japan, which expanded the evacuation zone around its crippled nuclear plant because of high levels of accumulated radiation, as a strong aftershock rattled the area one month after a massive quake and tsunami.
(Additional reporting by Gene Ramos in New York, Claire Milhench in London and Florence Tan in Singapore; Editing by Dale Hudson)