Oil retreated on Monday, with both U.S. and Brent crudes down over a dollar, after Libyan rebels regained control of key oil towns and the dollar strengthened on hawkish comments from a U.S. central banker.
U.S. crude was down $1.07 to $104.33 a barrel at 1210 GMT after earlier dipping to $104.20. Brent crude for May was down $1 to $114.59 a barrel, after slipping to $114.55.
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Michael Hewson, an analyst at CMC Markets, attributed the fall to the slightly stronger dollar following comments late last week from Charles Plosser, president of the Philadelphia Federal Reserve.
Plosser said the U.S. central bank would have to reverse its easy money policy in the "not-too-distant future" to avoid sowing the seeds of inflation..
A stronger dollar means that commodities priced in dollars are more expensive for those using other currencies.
"Nothing has really changed from a Middle East perspective," Hewson said. "That's not a situation that will go away any time soon."
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 are now advancing on leader Muammar Gaddafi's hometown of Sirte, streaming west along the main coastal road.
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, an oil analyst at Petromatrix.
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."
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."
Hewson also suggested that concerns about sovereign debt in Europe could be weighing on sentiment with respect to future demand. "Will a default in Greece or Portugal affect growth in the eurozone or demand for crude oil?"
He stressed that crude would not come crashing down due to underpinning from the Middle East, but added: "In the short term it looks fairly quiet. We haven't seen much in the way of decent volumes today."
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