Oil retreats on receding Syrian tension, QE outlook

Oil prices snapped two days of advances as the U.S. and Russia began talks on the plan to put Syrias chemical weaponry under international control, thus reducing concern that U.S.-led military action might spill the conflict over to neighboring major oil producers in the Middle East. Market players also eyed upcoming U.S. economic data later on Friday in order to gauge Feds next move.

On the New York Mercantile Exchange, WTI crude for delivery in October fell by 0.37% to $108.20 a barrel at 7:04 GMT. Prices held in range between days high and low $108.81 and $108.20 per barrel respectively. The American benchmark rose by 0.9% on Thursday but extended its weekly decline to 1.9% following Fridays retreat.

Meanwhile on the ICE, Brent oil futures for November settlement fell by 0.15% to $111.36 per barrel at 7:05 GMT. Prices held in range between days high and low of $111.96 and $111.35 a barrel respectively. The European benchmark rose by 0.3% in the past couple of days but extended its weekly decline to over 3.9%.

Oil prices are back on track to settle the week lower as U.S. Secretary of State John Kerry and his Russian colleague Sergei Lavrov are due to continue their talks on the Syrian conflict today. Yesterday, the two and other U.S. and Russian officials met in Geneva to begin discussing Moscows plan to bring Syrias chemical arsenal under international control. Kerry however said that military action may still be needed if diplomacy fails. The two diplomats will discuss the securing, transporting and destroying Syrias chemical weapons in todays talks. Meanwhile, Syrian President Bashar al-Assad said that the U.S. must cease threatening with military intervention in the countrys civil war and stop arming rebels in return for relinquishing control Syrias chemical weapons.

Oil prices were also pressured amid expectations that todays likely upbeat U.S. data will reinforce the case the Federal Reserve will begin trimming its monetary easing program after next weeks Federal Open Market Committee meeting. To be released today, Augusts retail sales are projected to have increased by 0.5% following a 0.2% jump in July. Core retail sales likely rose by 0.3%. Producer inflation (Producer Price Index) should have risen by 0.2% on a monthly basis and 1.3% from a year earlier. Core PPI is expected to have gained 0.1% from July and 1.3% from August 2012. The preliminary reading of the Reuters/University of Michigan Confidence index is projected to have declined by 0.1 to 82.0.

According to a Bloomberg survey conducted last Friday, the central bank will trim its monetary stimulus by $10 billion after the meeting. Goldman Sachs analysts shared the same prediction.

The oil market however continued to draw support by ongoing protests in Libya, which reduced the countrys output to a tenth of its 1.6 million bpd capacity. The country holds Africas biggest crude reserves. Libyas production fell to 150 000 barrels per day, while exports crumbled to 80 000 bpd. Libyas state National Oil Corp declared force majeure on three ports, an NOC document showed on Thursday.

Earlier in the week, the Energy Information Administration reported that U.S. crude oil inventories fell by 219 000 barrels to 360 million during the week ended September 6. Analysts surveyed by Bloomberg expected a 2.1 million barrels drop. Stockpiles at Cushing, Oklahoma, the delivery point for New York-traded contracts and biggest U.S. storage hub, fell by 639 000 barrels to 34.1 million, a tenth consecutive decline.

Refineries utilization rose by 0.8% to 92.5%, the highest since 2006. Both gasoline and distillate fuel production remained unchanged last week and averaged 9.1 million and 5.0 million barrels per day, respectively. U.S. motor gasoline inventories rose by 1.7 million barrels to 217.6 million, confounding analysts’ projections for a 1 million barrels drop, while distillate fuel supplies rose by 2.6 million barrels last week to 132.2 million, underperforming projections for a 600 000 barrels increase.