WTI hovers above 4-week low as Libyan output recovers, easing Syria tension, EIA report in focus

Both West Texas Intermediate and Brent benchmarks traded near multi-week lows as Libya made progress in restoring partially its oil output, while advancing peace talks between worlds major forces regarding military action against Syria eroded oils geopolitical premium. Market players also awaited the outcome of FOMCs two day meeting which will conclude today with broad expectations pointing at an at least $10 million reduction of bond purchases. A government report due later today is expected to show that U.S. crude oil inventories fell to the lowest in more than a year.

On the New York Mercantile Exchange, WTI crude for delivery in November swung between gains and losses and traded at $105.10 per barrel at 6:58 GMT, up 0.27% on the day. Prices held in range between days high of $104.97 per barrel and low at $104.56, the weakest level since August 22. Light, sweet crude fell by 0.6% on Tuesday, and trimmed its weekly decline to 3%.

Meanwhile on the ICE, Brent oil for delivery in November fell by 0.10% to $108.08 per barrel at 6:57 GMT. Futures ranged between days high at $108.12 and low of $$107.65, the lowest since August 12. The European benchmark plunged 1.9% on Tuesday, a third consecutive daily decline, and extended its weekly decline to 3.2%.

Oil prices continued to retreat amid receding fears that a U.S.-led military intervention in the Syrian civil war might spill the conflict over to neighboring major oil producers. Diplomats from the US, Russia, Britain, France and China began negotiations on Tuesday to draft a U.N. Security Council resolution that will demand Assad to relinquish control of his chemical arsenal.

Phillip Futures analysts in a note on Wednesday: “The diplomatic resolution to gather and destroy Syrias arsenal of chemical weapons helped to relieve worries of a U.S. military response which had plagued the market recently.”

Libyan output

The oil market was further pressured as the Libyan government made progress in restoring some of its oil output. According to the state-owned National Oil Corp., the African country lifted force majeure yesterday at its Zawiya and Mellitah terminals as conditions improved. Libya, which holds Africas biggest oil reserves, is aiming to push its output to 700 000 barrels per day this week as production from the El Feel and Sharara fields resumed, where a combined 400 000 bpd will be pumped.

The African nations output fell to a tenth of its capacity in the beginning of the month, while exports plunged to 80 000 barrels per day. The country pumped out 1.6 million bpd before the civil war in 2011. Labor protests however crippled Libyas oil production which costed the country $130 million per day in lost income.

Ric Spooner, chief market analyst at CMC Markets, said for Reuters: “One of the foremost factors (for Brent prices) has been news that Libya is having some success restoring production capacity – which follows the momentum on the likelihood of a diplomatic solution to Syria. U.S. prices trending higher is probably just a short-term fluctuation, and also Libya being able to increase production has a more direct impact on Brent than on WTI.”

Also pressuring the market, investors remained cautious ahead of the outcome of FOMCs two day meeting, which will conclude today. Broad expectations call for an announcement that the Federal Reserve will pare its $85 billion bond purchasing program by at least $10 billion.

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.

Meanwhile, 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.

Inventories data

The industry-funded American Petroleum Institute reported yesterday that U.S. crude inventories fell by 252 000 barrels in the week ended September 13. Supplies at Cushing, Oklahoma, the biggest U.S. storage hub and delivery point for NYMEX-traded contracts declined by 889 000 barrels. Gasoline stockpiles plunged 641 000 barrels, while distillate fuel supplies dropped by 167 000 barrels. APIs data however is considered as less reliable than EIAs statistics as it is based on voluntary information from operators of pipelines, refineries and bulk terminals.

The Energy Information Administration is due to publish its weekly report at 14:30 GMT. According to a Bloomberg News survey of analysts, the report is likely to show that U.S. crude oil inventories fell by 1.2 million barrels to 358 million, the lowest in more than a year. Refineries utilization is expected to have remained above 90%. Both gasoline and distillate fuel supplies are projected to have increased by 500 000 barrels.