Oil extends retreat as Obama seeks Congress approval on Syria

Both WTI and Brent benchmarks extended losses on Monday as Barack Obama announced that he will seek Congresss approval for an attack against the Syrian regime led by Bashar al-Assad, which allegedly used chemical weaponry against civilians in the suburbs of Damascus. Losses remained in check on positive China data and further decline in Libyan oil output.

On the New York Mercantile Exchange, West Texas Intermediate crude for delivery in October fell by 1.04% to $106.53 per barrel at 7:21 GMT. Futures held in range between days high of $107.00 and a one-week low of $105.06 per barrel. The American benchmark rose by 1.2% last week and 2.5% in August, marking a third straight monthly advance.

Meanwhile on the ICE, Brent oil for delivery in the same month declined by 0.79% to $113.46 per barrel by 7:21 GMT. The contract ranged between days high of $113.87 and a one-week low of $112.28 per barrel. The European benchmark fell for a third straight day but settled last week 2.7% higher, the best weekly performance since early July, after adding 2.6% in the preceding two five-day periods.

Oil prices continued to ease from their last weeks multi-month highs as concern over an imminent U.S.-led attack against the Syrian regime eased after President Barack Obama announced he will seek approval by the U.S. Congress to initiate a punitive attack against Syria. This would delay any military action at least for nine days as the summer recess ends on September 9. The United States were initially expected to lead a swift strike backed by France and the U.K. but British lawmakers voted against Prime Minister David Camerons proposal last week to intervene in the the Syrian civil war.

Robin Mills, the head of consulting at Dubai-based Manaar Energy Consulting and Project Management, said for Bloomberg: “We will see more declines as the market digests that there doesn’t seem to be imminent action on Syria. Prices went up quite a bit last week on the Syria speculation, so it is due to fall back as there is no imminent attack or great disruption.”

Support

Losses however remained limited as upbeat China manufacturing data boosted the fuels demand prospects in the worlds second biggest consumer. The Chinese National Bureau of Statistics reported on Sunday that the countrys manufacturing Purchasing Managers Index surpassed forecasts for a jump to 50.6 according to a Reuters poll and rose to 51.0 in August, the highest since last April, from 50.3 in July.

Meanwhile, according to a separate private survey by HSBC and Markit Economics, the HSBC Purchasing Managers’ Index posted a surge to 50.1 in August, marking a major improvement from Julys 11-month low of 47.7 in July and ending a three-month declining cycle. Chinese manufacturers signaled a slight expansion in growth that was based on improving market conditions. New orders increased marginally for the first time since April. Weak client demand in Europe and the U.S. was behind the latest decline in new business from abroad.

Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: “The final reading of August’s HSBC China Manufacturing PMI recovered to 50.1, from an 11-month low of 47.7 in July. This implies that growth in Chinas manufacturing sector has started to stabilize on the back of a modest rebound of new orders and output. This was mainly driven by the initial filtering through of recent stimulus measures and companies’ restocking activities. We expect some upside surprises to Chinas growth in the coming months.”

The oil market was also underpinned by a further reduction in Libyas oil output, which has been struggling with strikes that closed off the countrys main export terminals as workers and security guards protested over payment and allegations of corruption. Sliman Qajam, a member of the parliamentary energy committee, said in a phone interview for Bloomberg that the African countrys production rate fell by 50 000 barrels per day on Sunday to 150 000 bpd, down from a 1.6 million bpd level prior to the civil war in 2011. Libyas government may stop paying civil servants by the end of the year as the country needs a minimum output of 400 000 barrels per day to be able to afford public-sector salaries, Qajam said.