WTI drops further as Syria tension eases

West Texas Intermediate fell for a second day as fear over an imminent attack against the Syrian regime eased after Russia said it will help put Syrias chemical weaponry under international control, which could avert the U.S.-led attack against the Middle Eastern country.

On the New York Mercantile Exchange, WTI crude for October delivery fell to $108.53 per barrel at 7:10 GMT, down 0.89% on the day. Futures held in days range between $109.01 and $108.21 per barrel. The contract slipped 1.3% on Monday and retreated further from Fridays two-year high, extending current weeks decline.

Meanwhile on the ICE, Brent oil for the same delivery month traded at $113.04 per barrel at 7:12 GMT, down 0.60% on the day. Prices ranged between days high and low of $113.33 and $112.63 a barrel respectively. The European benchmark extended its weekly decline to 2.5% following Tuesdays decline.

Oil prices retreated for a second day as concern over an imminent U.S. intervention in the Syrian civil war continued to ease. Russias positive response to the U.S. proposal to avoid military action, if Syria relinquishes control of its chemical weaponry helped erode some of oils premium as the military action was not seen as imminent any more.

President Barack Obama said in an interview with NBC News that Russia’s offer to help put Syrias chemical arsenal under international control was a “potentially positive development” and added that he is not sure of getting congressional support for military action against the Middle Eastern country.

Obama will make his case for U.S. action against Syria in a televised address today at 9:00 PM and is due to speak to lawmakers during the day. The Senate is expected to vote in favor or against the intervention by the end of the week but the passage in the House of Representatives may be tough as Obama hasnt won the support of many key figures.

Ben Le Brun, market analyst at OptionsXpress in Sydney, said for Reuters: “Were seeing a bit of the premium being erased from oil prices. Its still possible the U.S. could put a military attack on Syria but the chances of that dont appear to be as strong as they were a week ago. If we remove the Syrian tensions, wed probably see a Brent price under $110 a barrel, maybe even lower.”

Support

Losses however remained in check as analysts expect EIAs weekly crude oil inventories report to show a drop in reserves last week. Meanwhile, another batch of upbeat China data boosted demand prospects in the worlds second biggest consumer.

The industry-funded American Petroleum Institute will release its oil report later today. However, it is considered as less reliable than EIAs statistics as it is based on voluntary information from operators of pipelines, refineries and bulk terminals. According to a weekly Bloomberg survey of analysts, tomorrows EIA numbers should show a that crude inventories dropped by 2 million to 358.2 million barrels last week, the lowest since August 31, 2012. Gasoline reserves probably fell by 1 million barrels, while distillate fuel supplies likely rose by 500 000 barrels, the survey showed.

Oil also continued to draw support as recent upbeat data from China brightened demand prospects. The Asian countrys industrial output rose more than expected. Chinas industrial production surged by 10.4% in August, exceeding analysts projection for a 9.9% rise and the preceding months 9.7% expansion. Meanwhile, the Chinese National Bureau of Statistics reported that Chinese Retail Sales surpassed both economists expectations and the previous months increase of 13.2% and increased by 13.4%.

Data showed yesterday the countrys 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.