Oil extends retreat as Syria tension fades, QE outlook in focus

Both WTI and Brent benchmarks extended last weeks retreat amid growing chances for a diplomatic resolution of the Syrian conflict, which eased concern over global supply disruptions. Market players also eyed FOMCs upcoming two-day meeting on September 17-18, which should clarify Feds next moves.

On the New York Mercantile Exchange, WTI crude for delivery in November fell by 0.63% to $106.87 per barrel at 7:27 GMT. Prices held in range between days high and low of $107.00 and $106.23 a barrel respectively. The contract fell 0.1% on Friday and settled the week 1.5% lower, the biggest retreat since June.

Meanwhile on the ICE, Brent futures for November settlement slipped 0.51% to $114.14 per barrel at 7:27 GMT and held in days range between days high of $111.28 and low at $110.26, near Thursdays three-week low. The European benchmark fell 0.1% on Friday and settled the week 3.6% lower, marking the first decline in 5 weeks.

Oil prices retreated last week after recently hitting multi-month highs as Russia offered to help the U.S. put Syrias chemical arsenal under international control and aid the process of destroying them. On September 14, U.S. Secretary of State John Kerry and Russian Foreign Minister Sergei Lavrov agreed to a nine-month framework for finding and destroying Assads chemical weapons. The Syrian president is required to declare his countrys chemical weaponry inventories by September 20. Investors now eyed the U.N. inspection report on the August 21 attack in the suburbs of Damascus, which should be released today in New York.

Robin Mills, the head of consulting at Manaar Energy Consulting and Project Management in Dubai, said for Bloomberg yesterday: “I see Syria fading as a factor that’s moving oil markets. The price had already come off a bit last week when it became evident there was no attack imminent.”

Fed stimulus

Market players will also be keeping a close watch on FOMCs upcoming two-day meeting on September 17-18 where policy makers will be reassessing the U.S. economys recovery pace. Analysts have broad expectations that the Federal Reserve will begin trimming its monetary easing program this month amid signs of a consistent economic improvement. According to a Bloomberg survey conducted earlier this month, the central bank will trim its monetary stimulus by $10 billion after the meeting. Credit Suisse analysts expected a $20 billion reduction.

“A series of recent economic data improvements points in this direction and the weaker-than-expected August labour market report is unlikely to keep the Fed from proceeding with slowly winding down its asset purchases,” the investment bank said.

Oil extended losses despite a weaker U.S. dollar. Dollar-denominated commodities tend to trade inversely to the greenback as a weakening of the currency boosts raw materials appeal as an alternative investment and makes them cheaper for foreign currency holders. The dollar index fell by 0.52% to 81.25 at 7:17 GMT. The December contract ranged between days highof 81.35 and low at 81.29, the weakest level since August 28.

The dollar was pressured as Lawrence Summers, Treasury secretary under President Bill Clinton and former top aide to President Barack Obama, withdrew from consideration to succeed current Federal Reserve Chairman Ben Bernanke, which boosted speculations that it might take the central bank longer to end its stimulus programme.