WTI falls to 3 1/2-month low as Syria tension recedes; Fed outlook, inventories data in focus

West Texas Intermediate fell to a three-and-a-half week low and Brent hovered near yesterdays 4-week low as fears faded that a U.S.-led attack against Syria might spill the conflict over to neighboring major oil producers. Broad expectations that Fed will announce it will pare its monetary stimulus program after the upcoming FOMC meeting continued to pressure the market. Libya recovered some of its oil output, while EIAs weekly inventories data may show U.S. crude stockpiles fell to the lowest in a year.

On the New York Mercantile Exchange, WTI crude for November delivery fell by 0.46% to $105.70 per barrel at 7:06 GMT. Prices held in range between a days low of $105.25 a barrel, the lowest since August 23, while days high was touched at $105.84. The contract fell by 1.2% on Monday and is so far marking a 2.6% decline on weekly basis.

Meanwhile on the ICE, Brent oil for delivery in November swung between gains and losses and traded at $109.85 per barrel at 7:07 GMT, down 0.20% on the day. Futures ranged between days high and low of $109.89 and $109.46 a barrel respectively. The European benchmark slipped on Monday but extended its weekly decline to little over 1.6% after Tuesdays loss.

Oils geopolitical premium continued to erode after a what seems for now a successful diplomatic resolution to the Syrian crisis eased concern over crude supply from the Middle East. The region accounted for more than a third of global output in the first quarter. Yesterday, UN Secretary-General Ban Ki-moon made public the report by the inspection team in Damascus, according to which “clear and convincing evidence” was found that the nerve agent sarin was used in the attack on August 21. The report however did not point Assad as the one responsible.

Meanwhile, U.S. Secretary of State John Kerry said that the U.S. continues to be on the side of the opposition and seeks to put an end to Assads regime. “We remain committed to the opposition and committed to the Geneva process, which calls for a transition government. That’s our end strategic goal,” he said.

On Saturday, Kerry and Russian Foreign Minister Sergei Lavrov agreed to a nine-month framework for finding and destroying Assad’s chemical weapons. The Syrian president is required to declare his country’s chemical weaponry inventories by September 20. However, tension still hasnt receded completely as the U.S., Britain and France warned Assad that there would be consequences if he fails to comply with the terms of the agreement.

Ben Le Brun, market analyst at OptionsXpress in Sydney, said for Reuters: “The risk premium is coming out of oil markets because the Syrian tension seems to be dying down. But theyre still simmering beneath the surface so there would still have to be some risk premium built into the price.”

Additional pressure

The oil market was further pressured as Libya restored around 25% of its output following talks between the government and protesters. According to state-run news agency Lana, the country, resumed production at the El Feel and Sharara fields yesterday, and is now pumping about 250 000 barrels per day after output had fallen to a tenth of its 1.6 million bpd capacity in the beginning of the month. The country holds the biggest crude reserves in Africa.

Meanwhile, the U.S. National Hurricane Center in Miami reported that hurricane Ingrid has weakened to a slow-moving tropical depression, producing torrential rains and floods, and has moved into Mexico.

Meanwhile, market players continued to keep a close eye on FOMCs upcoming two-day meeting, due to begin later today. According to a Bloomberg survey conducted on September 6, the central bank will reduce its monthly purchases of Treasuries to $35 billion from $45 billion and keep mortgage-bond buying unchanged at $40 billion.

Dollar-priced commodities received a boost yesterday amid a broadly weaker dollar 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. This boosted speculation that the end of the program might be deferred as Summers was expected to tighten Fed policy more than his potential opponent Fed Vice Chairman Janet Yellen.

Inventories data

The industry-funded American Petroleum Institute is scheduled to release its weekly U.S. inventories data later today. Its data however is considered as less reliable than EIAs statistics as it is based on voluntary information from operators of bulk terminals, refineries and pipelines. According to a Bloomberg News survey, U.S. crude stockpiles might have fallen by 1 million barrels, or 0.3%, to 359 million barrels last week, the lowest in a year. Refineries utilization is expected to have remained above 90% and supplies at Cushing, Oklahoma, the biggest U.S. storage hub and delivery point for NYMEX-traded contract, should have declined.