WTI Crude Caps Biggest Weekly Drop Since July on Syria

West Texas Intermediate crude capped its biggest weekly drop since July as the U.S. and Russia held talks on a plan for Syria to surrender chemical weapons to avert a strike that could stoke Middle East tensions.

Prices fell for the first time in three days as Secretary of State John Kerry reported a “constructive” start to negotiations with Russian Foreign Minister Sergei Lavrov. He gave no sign of a breakthrough. President Barack Obama postponed a decision on military strikes this week to pursue diplomacy. WTI pared losses in the last five minutes of floor trading, and Brent rose, after Obama said any agreement must be verifiable.

“The fact that there is some progress with regard to the Syria situation is alleviating some of the security premium built in the price,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The diplomatic back-and-forth is going to take awhile. If it’s a little optimistic, you’ll see a pullback. And if it goes off the rail, it will head back up.”

WTI for October delivery slid 39 cents, or 0.4 percent, to settle at $108.21 a barrel on the New York Mercantile Exchange. Prices declined 2.1 percent this week, the most since the five days ended July 26. The volume of all futures traded was 26 percent less than the 100-day average at 3:12 p.m.

Brent for October settlement, which expires today, rose 15 cents to $112.78 a barrel on the London-based ICE Futures Europe exchange. The contract expired today. The more-active November futures gained 17 cents to $111.70. Volume was 5.3 percent below the 100-day average.

The front-month European benchmark crude was at a premium of $4.57 to WTI, compared with $4.03 at yesterday’s settlement.

‘Constructive Conversations’

“We would both agree that we had constructive conversations” regarding Syria’s chemical weapons, Kerry said in Geneva after initial meetings with Lavrov. “But those conversations are continuing.”

Syrian President Bashar al-Assad said the U.S. must forswear any military strike and cease arming the rebel “terrorists” fighting to overthrow his regime.

The president delayed a possible U.S. military intervention twice: first on Aug. 31 to consult Congress, then on Sept. 10 to consider Russia’s proposal for international oversight of Syria’s chemicals arsenal.

Obama said he hopes the negotiations in Geneva “bear fruit” and that any agreement “needs to be verifiable and enforceable.” He spoke to reporters today after meeting with the emir of Kuwait at the White House. Syria’s use of chemical weapons is a “criminal act,” he said.

‘Receding Fears’

“The market came under some pressure on receding fears that there will be an imminent attack on Syria,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “We are going to continue to see headline-driven trading while the market keeps a wary eye on the Syria talks.”

Crude rose to a two-year high on Aug. 28 on concern that tension in Syria will spread and disrupt Middle East exports.

Syria borders Iraq and is near Iran, countries that together hold almost a fifth of the output capacity from the Organization of Petroleum Exporting Countries, Bloomberg estimates show. The Middle East accounted for 35 percent of global oil production in the first quarter of this year, according to the International Energy Agency.

“A lot of the geopolitical risk in prices linked to Syria has deflated over the past week as the U.S. accepts to explore alternative diplomatic routes with the Russians to solving the Syrian crisis,” said Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas SA in London.

Fed Stimulus

Crude also declined on speculation that the Federal Reserve will announce a plan to taper stimulus measures next week. Fed policy makers, meeting Sept. 17-18, are likely to reduce monthly asset purchases to $75 billion from $85 billion, according to the median estimate in a Bloomberg survey of 34 economists.

“Some selling is generated by the fears that the Fed will start to taper,” Kilduff said.

Brent rose after Libya declared force majeure yesterday on exports from the Mellitah, Hariga and Zawiya ports as workers continue to strike, according to state-owned National Oil Corp. The legal clause excuses the company from meeting its delivery commitments because of circumstances beyond its control.

The OPEC nation is pumping about 200,000 to 300,000 barrels a day, compared with a post-revolution high of 1.6 million a year ago, Prime Minister Ali Zaidan said in Tripoli on Sept. 11. Force majeure is in place at three other terminals.

Libyan Outages

“If the Libyan outages are not at least partially addressed in the next four to six weeks, then Libya will start to become more bullish, because in October and November, crude buying starts to pick up again, ahead of seasonally higher runs in the winter,” Societe Generale SA analysts including Mike Wittner, head of oil-market research in New York, said in a report today.

Implied volatility for at-the-money WTI options expiring in November was 21.3 percent, down from 21.8 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 403,463 contracts as of 3:12 p.m. It totaled 579,068 contracts yesterday, 8.4 percent below the three-month average. Open interest was 1.93 million contracts.

To contact the reporter on this story: Moming Zhou in New York at mzhou29@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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