Oil retreats as Syria agrees with Russian proposal

Oil prices slumped in the late European session as Syrian Foreign Minister Walid al-Muallem said today that his country agreed with Russias proposal to relinquish control of its chemical arsenal in order to avoid military conflict with the U.S. Both WTI and Brent benchmarks fell more than 2%, followed by a 1.5% decline in gold prices.

On the New York Mercantile Exchange, WTI crude for delivery in October fell by 2.22% to $107.08 per barrel at 14:08 GMT. The American benchmark slipped to two-week low of $106.60 after the news came out, while days high remained at $109.01 a barrel. Tuesdays losses extended current weeks decline to little over 2.8%.

Meanwhile on the ICE, Brent futures for October settlement plunged to $111.31 per barrel at 14:09 GMT, down 2.12% on the day. Prices ranged between days high of $113.55 and low at $110.60 a barrel, the weakest level since August 27. The European benchmark extended its weekly decline to 4% after adding rising for the past four weeks.

Both oil and gold retreated on Tuesday after hope for diplomatic resolution of the Syrian conflict eased concern over global oil supply and limited save haven demand for the precious metal. The geopolitical risk receded as Foreign Minister Walid al-Muallem said today during a trip to Moscow that Syria accepted Russias proposal for granting international control to its chemical weapons as a way for peacefully resolving the conflict with the U.S. and averting military intervention.

“Yesterday we had a round of very fruitful negotiations with Foreign Minister Sergei Lavrov and he proposed an initiative concerning chemical weapons,” al-Muallem said. “And already by the evening we agreed to the Russian initiative.”

Meanwhile, President Obama is due to convince the nation in a televised address that, if left unpunished, the alleged use of chemical weapons in Damascus on August 21 imposes a global threat, despite the acceptance to Russias plan.

Libyan production

Putting a floor to oil declines, output in Libya remains almost completely blocked. The African countrys production fell to a tenth of its capacity at 150 000 barrels per day last week, while exports plunged to 80 000 bpd. No deal has been reached yet between the Libyan government and the protesters who blocked the countrys main terminals in the end of July.

Bjarne Schieldrop, chief commodity analyst at SEB, said for Reuters: “In terms of Syria impact, I dont think Brent will have further to go down on that… The most important issue at the moment is Libya. It seems Obamas wish is that this would become true, that they can place the chemical weapons under international protection so there is not an immediate attack.”

JBC analysts wrote in a report that they expect Libyas output to remain 500 000 barrels per day below its potential level until the end of the year.

China data

Oil also drew support as positive economic data from China boosted demand prospects in the worlds second biggest consumer. The Asian country’s industrial output rose more than expected. China’s industrial production surged by 10.4% in August, exceeding analysts’ projection for a 9.9% rise and the preceding month’s 9.7% expansion. Meanwhile, the Chinese National Bureau of Statistics reported that Chinese Retail Sales surpassed both economists’ expectations and the previous month’s increase of 13.2% and increased by 13.4%.

Data showed yesterday the country’s total exports rose by 7.2% last month, exceeding analysts’ expectations for a 5.5% surge. Imports increased by 7%, below projections, but still above July’s 5.1% rise. China’s trade surplus widened to $28.6 billion from $17.8 billion in July, surpassing expectations for a rise to $20.0 billion.

Meanwhile, the Chinese National Bureau of Statistics reported that consumer inflation rose by 2.6% and remained below the government’s target, leaving extra room for mini financial stimulus, which could provide ground for sustainable growth. China’s producer-price index fell by 1.6% in August after dropping 2.3% in July, marking the smallest decline in six months.