Oil prices retreated from near 2-1/2 year highs on Thursday as traders took profits after Venezuela pitched a plan to resolve the Libyan crisis, despite deep skepticism about whether it would work.

The pull-back follows two days of strong gains that sent a key technical indicator into the deepest overbought territory in nearly two years. Few traders expect any quick resolution to the violence that has halved Libyan oil output and sparked concerns over unrest across the Middle East.

I am highly skeptical the market is coming off on assumptions that Chavez will successfully mediate in Libya, said Stephen Schork, editor of The Schork Report in Villanova, Pennsylvania. I think the market was overbought.

Venezuelan President Hugo Chavez's plan to negotiate a resolution met with little immediate support. The chairman of the rebel National Libyan Council entirely rejected any talks with Libyan leader Muammar Gaddafi while Arab League President Amr Moussa said it was merely under consideration.

By 1:30 p.m. EST , Brent crude futures for April delivery was down $2.02 at $114.33 a barrel, after ending at $116.35 on Wednesday, the highest close since August 2008.

U.S. crude futures for April fell $1.16 to $101.07, after hitting a low of $100.15.

Brent's premium to U.S. crude contracted to below $14 after last week's record $16.91. Some traders said investors were unwinding some positions on the Brent-West Texas Intermediate spread, knocking down Brent faster than U.S. crude.

LIBYA CUT, EMPTY TANKERS SAIL

Libyan output has fallen to 700,000-750,000 barrels per day from normal levels of 1.6 million bpd as most foreign oil workers had taken flight, according to Shokri Ghanem, the head of Libya's state-owned oil company.

Despite the unrest, tankers were still leaving and waiting to enter Libya's ports, sources said. At least one empty tanker left a Libyan terminal on Thursday to take on cargo in Egypt, and at least two more tankers were waiting to enter Libyan ports.

POSITIVE U.S. DATA LIMITS LOSSES

U.S. crude's losses were softened by data showing that the number of Americans filing for jobless benefits for the first time fell to the lowest level in more than 2-1/2 years, signaling stepped-up job creation could be under way.

The data falls outside the survey period for the government's closely watched employment report for February due out on Friday. A Reuters poll forecast nonfarm payrolls probably rose but the unemployment rate was seen ticking up to 9.1 percent, from 9.0 percent in January.

If not for high oil prices we'd have been cheering all the positive data, like the jobless claims, in the past few days, said Phil Flynn, analyst at PFGBest Research in Chicago.

And the dollar is being smashed because of the ECB and the likelihood that moves to fight inflation might mean lower demand in Europe and the Brent market.

The euro rallied against the greenback after European Central Bank President Jean-Claude Trichet cemented expectations of a near-term interest rate rise.

(Additional reporting by Matthew Robinson in London, Christopher Johnson in London; Editing by Marguerita Choy)

Egypt Libya