Brent crude fell by almost $3, reaching a two-week low near $111 on investor pessimism that economic growth will slow in the wake of Japan's earthquake and tsunami, while easing unrest in the Middle East threw the focus back onto ample oil supplies.

April Brent fell as much as 2.4 percent to $111.16, the lowest price since February 25, the day after it hit a 2-1/2-year high of almost $120. It was down $2.54 at $111.30 at 0236 GMT. U.S. crude fell $1.73 to $99.43.

Japan's strongest earthquake on record on Friday shut refineries and industrial plants in the world's third-largest oil consumer, with a potential dual effect on energy demand, bearish in the near term and bullish in the longer term.

Expectations of higher fossil fuel demand to substitute 9,700 megawatts (MW) of nuclear power capacity lost after the 8.9-magnitude tremor are helping boost the value of Brent later this year relative to the prompt prices. U.S. natural gas rose almost 1 percent.

If you discount what has happened in the Middle East, events in Japan are negative for growth, said Jonathan Barratt, managing director at Commodity Broking Services in Sydney.

Police presence across cities in top oil exporter Saudi Arabia sputtered planned day of rage protests on Friday, while in neighboring Bahrain the crown prince offered assurances of national dialogue on Sunday after police fired tear gas and water cannon at demonstrators.

The day of rage wasn't so bad, and these are all concerns that are in the background. Japan is more real, Barratt said.

Arab countries appealed to the United Nations on Saturday to impose a no-fly zone on Libya as government troops backed by warplanes fought to drive rebels from remaining strongholds in western Libya.

Muammar Gaddafi's troops battled rebel fighters for control of the strategic Libyan oil town of Brega on Sunday, as France promised to push harder for a UN-backed no-fly zone over what used to be Africa's third-largest oil producer, before a civil war slashed output by at least two-thirds.

Saudi Arabia and other OPEC producers have increased production, partly to offset the drop in Libyan exports.

Japan battled on Monday to prevent a nuclear catastrophe and to care for millions of people without power or water in its worst crisis since World War Two, following Friday's natural disaster, which is feared to have killed more than 10,000 people.

Japanese automakers and electronics firms shut key factories, underscoring the challenge facing the government as it rushes to limit the economic blow.

A disaster like this requires quick action from Japanese authorities and may hamper near-term growth prospects in Japan, although it is unlikely to significantly impact the global economic outlook, said Ben Le Brun, an analyst at CMC Markets.

Nikkei futures on the Osaka Stock Exchange fell 7 percent from Friday's regular session while Japanese government bond prices jumped more than a half point at opening after Japan suffered its strongest earthquake in its modern history.

Japan will move quickly to import more liquefied natural gas (LNG) and low-sulphur fuels to generate power at thermal plants and replace nuclear electricity supplies.

The country's demand for fuel oil at power plants was set to rise, while in the longer-term consumption of distillates including diesel would also increase for reconstruction.

The market perhaps is overdoing it, Barratt said. If you look at the concerns of nuclear power, they are going to have to shift to thermal- or oil-powered generation. Then, that should support oil.

The front of the Brent forward curve was flat and close to reverting into contango, a structure denoting reduced urgency for supplies in the near term compared to future ones, after front-month Brent commanded a premium of as much as 50 cents over the second month as recently as mid-February.

Oil prices will fall in the short term and may rebound in one or two months, said Jiang Jiemin, chairman of Asia's leading oil producer PetroChina <0857.HK>.

(Editing by Himani Sarkar)

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