Oil slips under $104 despite battles in Libya

Oil prices slipped below $104 a barrel on Thursday but remained elevated and highly volatile in light of the intense battles around Libya's crude and gas facilities.

Investors are keeping a close watch on developments in the country, especially as its crude production has fallen more than previously estimated as the fighting near key oil installations has intensified.

Sentiment in the oil markets over the past few weeks has been driven by developments in North Africa, where Libya produces, in normal times, a little under 2 percent of the world's global oil needs.

Though oil prices have dipped modestly over the past couple of days they remain at historically high levels.

By early afternoon in Europe, benchmark crude for April delivery was down 56 cents at $103.82 a barrel in electronic trading on the New York Mercantile Exchange. Meanwhile, Brent crude was down 84 cents at $115.10 a barrel on the ICE futures exchange.

The declines come despite news that Libya's oil production has been cut to 500,000 barrels a day from 1.6 million since a rebellion against Moammar Gadhafi began last month, National Oil Corp. chief Shukri Ghanem said Wednesday. Ghanem had previously estimated the OPEC nation's output had been reduced by about half.

The scale of the fighting was evident in the damage done to the country's largest oil refinery and storage complex at Ras Lanouf.

On Thursday, Libya's opposition won official recognition from France, while rebel forces seemed better armed and were reported to be attacking government troops with heavy weapons on the road to Tripoli, the capital.

Concerns remained that events in Libya and North Africa could spread to other oil-rich countries in the region, specifically to Saudi Arabia.

"Energy markets are flying blind for the moment, with prices very much held hostage to the goings-on in the Middle East," said Edward Meir of MF Global in New York. "Markets will be watching the March 11 `Day of Rage' protests approaching in Saudi Arabia. We suspect markets will breathe much easier once the 11th comes and goes without incident."

In other Nymex trading for April contracts, heating oil lost 2.43 cents to $3.0464 a gallon and gasoline fell 2.55 cents to $3.0017 a gallon. Natural gas was down 3.5 cents at $3.895 per 1,000 cubic feet.