Oil retreated on Monday with Brent slipping to around $115 after Libyan rebels regained control of key oil towns, and unrest over the weekend was limited to minor crude exporters Syria and Yemen.
Brent crude for May fell 41 cents to $115.18 a barrel by 1028 GMT (6:28 a.m. ET), about $5 from a 2-1/2-year high near $120 reached last month. U.S. crude shed 63 cents to $104.77.
Libyan rebels regained control of all the main oil terminals in the eastern half of Libya over the weekend: Es Sider, Ras Lanuf, Brega, Zueitina and Tobruk.
They advanced on leader Muammar Gaddafi's hometown of Sirte, seeking to extend their advance west..
A Libyan rebel official said on Sunday Gulf oil producer Qatar had agreed to market crude oil produced from east Libyan fields no longer in Muammar Gaddafi's control.
Qatar has recognized the rebel Libyan National Council as the sole legitimate representative of the Libyan people, the Qatari state news agency reported.
These are positive developments which are negative for oil prices potentially, said Olivier Jakob, oil analyst at Petromatrix.
He also pointed to the fact that the dollar was slightly stronger this morning. A stronger dollar means that commodities priced in dollars are more expensive for those using other currencies.
Output from Libya oilfields controlled by rebels was running at about 100,000 to 130,000 barrels per day (bpd), which could be increased to 300,000 bpd, Ali Tarhouni, a rebel official in charge of economic, financial and oil matters, said on Sunday. Libya was pumping about 1.6 million bpd before the rebellion.
But some analysts and traders are skeptical about how quickly things will return to normal.
Maybe there's some hope that with rebels regaining control of... the lion's share of Libyan production, normality may resume soon but I think it is still too early, said Carsten Fritsch, an analyst at Commerzbank. Damage to oil facilities will prevent a sudden return to normal production levels.
John Drake, a senior risk consultant at UK-based consultancy Ake said that it will be necessary to bring in specialist staff to restart the damaged facilities, which could prove difficult in the short term.
They may require more pay, and insurance may also be more of a challenge. It's also difficult at the moment to know what kind of authorities you might be dealing with the rebel areas.
Christopher Bellew, an oil trader at Bache Commodities, was also skeptical of any short term improvement in Libya.
What the outcome of this war will be is by no means clear. If they do manage to oust Gaddafi -- and it's that expectation that is causing prices to fall -- it might not be a clean change of regime. I just don't imagine that everybody's going to suddenly settle down.
He also pointed to extra demand for oil from Japan given its nuclear power station shutdowns, and continuing unrest elsewhere in the Middle East, all providing a floor. It's difficult to see there being a steep fall in prices at the moment, he said.
(With additional reporting by Alejandro Barbajosa in Singapore and Peter Apps in London)