WTI Drops for Third Day as Obama Seeks Approval on Syria

West Texas Intermediate fell a third day after President Barack Obama said he’ll seek approval from Congress before taking military action in Syria, easing concern that an imminent strike may disrupt Middle East oil exports.

Futures dropped as much as 3.2 percent, the most in more than two months. Obama said Aug. 31 that he’ll give lawmakers the opportunity to debate and vote on the planned military response to Syria’s alleged use of chemical weapons on residents near Damascus. Congressional leaders have agreed to take up the issue once they return from their recess on Sept. 9. The U.K. last week rejected a proposed strike, capping oil’s advance.

“The postponement of any intervention in Syria while governments ask their politicians for authorization has taken some of the steam out of oil prices,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd. in London.

WTI for October delivery fell 83 cents to $106.82 a barrel as of the halt of holiday electronic trading at 1:15 p.m. on the New York Mercantile Exchange after sliding as much as $3.44 to $104.21. The volume of all futures traded was 79 percent less than the 100-day average. The contract rose 1.2 percent last week and 2.5 percent in August, a third monthly gain.

Floor trading on Nymex was closed for the U.S. Labor Day holiday. There were no settlements today, and electronic trading will resume at 6 p.m. for tomorrow’s trade date.

Brent Gains

Brent for October settlement rose 32 cents to $114.33 a barrel on the London-based ICE Futures Europe exchange, having earlier dropped as much as $1.81, or 1.6 percent, to $112.20. The European benchmark was at a premium of $7.51 to WTI, compared with $6.36 on Aug. 30.

“We will see more declines as the market digests that there doesn’t seem to be imminent action on Syria,” said Robin Mills, the head of consulting at Dubai-based Manaar Energy Consulting and Project Management. “Prices went up quite a bit last week on the Syria speculation, so it is due to fall back as there is no imminent attack or great disruption.”

Hair and blood samples from Syria tested positive for the nerve agent sarin, U.S. Secretary of State John Kerry said in television interviews as he sought to build the case for Congress to authorize a military strike.

The U.K. won’t hold a second parliamentary vote on military action against Syria, Deputy Prime Minister Nick Clegg told reporters in London today. Lawmakers rejected Prime Minister David Cameron’s proposal for intervention last week.

Intelligence Report

France remains ready to act with the U.S. against Syria, the country’s President Francois Hollande said after the U.K. vote. French lawmakers are scheduled to debate a targeted strike on Sept. 4, though Hollande isn’t legally required to consult parliament. The French government said in a declassified intelligence report that the chemical attack could only have been carried out by the Syrian government.

Syrian President Bashar al-Assad said a U.S. attack on his country would have consequences across the Middle East, a region he described as a “powder keg,” according to an interview published in Le Figaro newspaper.

The Middle East accounted for about 35 percent of global oil production in the first quarter of this year, according to data from the International Energy Agency. Syria borders Iraq, the biggest producer after Saudi Arabia in the Organization of Petroleum Exporting Countries.

‘Eroding’ Fundamentals

Investors should sell Brent if military action in Syria prompts futures to rise, according to Morgan Stanley.

“Eroding oil fundamentals already point to a weakening of Brent prices,” Adam Longson, a New York-based analyst at the bank, said today in an e-mailed report. “Without significant contagion, we are unlikely to see any real supply disruption related to Syria.”

Hedge funds increased bullish oil bets for the first time in five weeks on speculation the U.S. will attack Syria, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders report on Aug. 30. Money managers boosted net-long positions in WTI, or wagers that prices will climb, by 4.9 percent to 317,523 futures and options combined in the seven days ended Aug. 27.

Bets also rose amid worsening output losses in Libya, holder of Africa’s largest crude reserves. The country is producing less than 300,000 barrels of crude a day and exporting a “nominal quantity” from its Brega and Mellitah terminals, Deputy Oil Minister Omar Shakmak said today.

Libya Losses

The North African state is producing 150,000 barrels a day, or about one-tenth of its capacity, after losing 50,000 barrels in daily output yesterday because of strikes by workers and security guards over pay and allegations of corruption, Sliman Qajam, a member of the parliamentary energy committee, said yesterday in a phone interview in Tripoli.

Hedge funds and other money managers raised bullish bets on Brent crude to the highest in more than two years, according to ICE Futures Europe.

Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 231,962 lots in the week to Aug. 27, the London-based exchange said today in its weekly Commitments of Traders report. That’s up 11 percent from last week and is the most since at least January 2011, the starting point for the data series.

Gasoline for October delivery slipped 0.92 cent, or 0.3 percent, to $2.8809 a gallon on the Nymex on volume that was 90 percent below the 100-day average. October-delivery ultra-low-sulfur diesel gained 0.15 cent to $3.1381 a gallon. Volume was 88 percent below the average.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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