Oil retreats as diplomatic progress eases Middle East tension

Both West Texas Intermediate and Brent benchmarks fell on Friday and are headed for a third consecutive weekly decline after the five permanent members of the U.N. Security Council agreed on a resolution to put Syrias chemical arsenal under international control. Talks between Iran and six major world powers further eroded oils geopolitical premium, although an increase of Irans exports is not expected to happen any time soon. Some overall positive U.S. data on Thursday limited losses.

On the New York Mercantile Exchange, WTI crude for delivery in November fell to $102.66 per barrel at 6:52 GMT, down 0.36% on the day. Prices held in range between days high and low of $102.93 and $102.51 a barrel respectively. The U.S. benchmark rose by 0.4% on Thursday after falling for five straight sessions but extended its weekly decline to 2.1% and is headed for a third consecutive weekly loss.

Meanwhile on the ICE, Brent futures for November settlement traded at $109.04 per barrel at 6:50 GMT, down 0.12% on the day. Prices shifted between session high and low of $109.24 and $108.88 a barrel respectively. The European benchmark advanced 1% on Thursday but extended its weekly decline to 0.2% and is headed for a third consecutive week of retreat.

Oil prices returned to negative territory on Friday after regaining some positions following Thursdays U.S. data as the five permanent members of the U.N. Security Council reached an agreement on a resolution to destroy Syrias chemical arsenal. Russias Foreign Minister, Sergei Lavrov, confirmed that his country has agreed to a strong and enforceable resolution, on which Security Council members will vote today in New York.

Ric Spooner, chief market analyst at CMC Markets, said for Reuters: “The geopolitical risk has been unwound a bit, but its still reflected in oil prices. The most likely scenario is that prices will come down further.”

Meanwhile, prospects for a thaw in the relations between Iran and the U.S. also pressured prices. Iran’s Foreign Minister Mohammad Javad Zarif discussed his countrys nuclear program on Thursday with U.S. Secretary of State John Kerry, as well as officials from the other four permanent Security Council members and Germany. These were the first formal high-level talks between the United States and Iran since 1979. According to a U.S. State Department official, Iran seeks a deal on its nuclear program within a year.

While Irans recently elected centrist President Hassan Rohani has calmed some investors with his will to reduce tension over Tehrans nuclear ambitions, analysts dont expect an increase in the countrys oil exports any time soon.

Helima Croft, Barclays analys said in a note: “The path to a lasting diplomatic deal that will lead to Iranian barrels returning to the market remains quite perilous.”

Losses however remained somewhat limited as overall positive U.S. data on Thursday, which lead to the first daily advance of WTI in six days, continued to underpin the market. The U.S. Department of Labor reported that the number of people who filed for initial jobless payments in the week ended September 21 hit a six-year low, boosting speculations that the Federal Reserve might pare its bond purchases in the fourth quarter. The report showed that 305 000 claims were filed last week, confounding analysts’ expectations for a surge to 325 000 from last week’s upward revised 310 0000 claims filed. The five-week average, which irons out weekly volatility, fell to 308 000 claims from 315 000 in the preceding week.

A separate report showed that year-on-year, the U.S. economy grew by 2.5% in the second quarter, matching its revised preliminary reading. This was a bigger expansion than in the first three months of the year and was considered by analysts as respectable growth given the increased taxes in January and reduced federal budget in March.

However, the National Association of Realtors said that U.S. Pending Home Sales fell by 1.6% in August, underperforming analysts’ projections for a 1% decrease. At the same time, the Commerce Department said that its price index for purchases of goods and services by the American households fell by 0.1% on annual basis in the second quarter, the first decline in four years. Core personal consumer spending, which excludes the more volatile energy and food expenditures, rose only by a 0.6% annual rate in April-June, underperforming expectations and the preceding period’s 0.8% advance.