London - Oil prices fell on Thursday, with North Sea Brent crude dropping below $115 after the Arab League said a peace plan for Libya was under consideration.
The uprising against Muammar Gaddafi has reduced Libya's oil production by around half, industry officials estimate, and anything that helped restore output would help calm oil markets.
But analysts and traders were sceptical over the prospect of any immediate end to fighting in Libya, where Gaddafi faces an increasingly organised and confident rebel army.
Iraqi Oil Minister Abdul-Kareem Luaibi said the Organization of the Petroleum Exporting Countries was concerned about the turmoil in Libya but had sufficient oil to cover any shortfall caused by the rebellion there.
Brent crude futures for April hit an intra-day low of $113.09 a barrel, down over $3 on the day, before rebounding to around $114.50 by 1500 GMT, still down $1.85.
US crude futures for April were down 60 cents at $101.63, after hitting a low of $100.37. The contract settled at $102.23 a barrel in the previous session, ending above $100 for the first time since September 2008.
"The 'peace plan' for Libya obviously knocked the market lower but it doesn't seem to be having more than a passing impact on prices, which will probably head higher again," said Cartsen Fritsch, analyst at Commerzbank in Frankfurt.
Arab League Secretary-General Amr Moussa said on Thursday a peace plan for Libya from Venezuela's President Hugo Chavez was "under consideration."
News network Al Jazeera said earlier the plan would involve a commission from Latin America, Europe and the Middle East trying to reach a negotiated outcome between Gaddafi and rebel forces for the country.
Risk to Libyan infrastructure
But a leader of the uprising against Gaddafi's 41-year-old rule said he would reject any plan for talks with Gaddafi to end the conflict in the world's 12th largest oil exporting nation.
Analysts said they saw little chance any Chavez-backed plan would succeed and added they were worried about damage to Libyan oil infrastructure as a result of the fighting.
"I don't think that another relatively extreme leader who is an ally to Gaddafi has a chance to be accepted as a peace-broker. It's very unlikely to work," said Samuel Ciszuk, Middle East analyst at IHS Energy in London.
"It has become likely that Libyan fighting will affect, and potentially destroy, oil infrastructure serving the country's largest, central basin, which is right on the fault line between Gaddafi loyalists and rebels."
Libyan output has fallen to 700 000 - 750 000 barrels per day (bpd) as most foreign oil workers had taken flight, according to Shokri Ghanem, the head of the North African producer's state oil company..
Concern the conflict might disrupt more Libyan output and that protests in the region may interrupt supply from other major producers has spurred oil prices to two-and-half-year highs. Brent rose to near $120 a barrel on February 24.