WTI Crude Falls as Syria Talks Seen Averting Attack

West Texas Intermediate crude fell to a three-week low as a plan to eliminate Syria’s chemical weapons reduced the risk of a disruption in Middle East exports.

Futures declined 1.5 percent after the U.S.-Russian accord reached Sept. 14 in Geneva. U.S. Secretary of State John Kerry joined top French and U.K. diplomats today in calling for a tough United Nations resolution to eliminate Syria’s chemical arsenal. Libya’s El Feel and Sharara oil fields resumed output, the state-run news agency Lana reported.

“The agreement between the U.S. and Russia eliminates any chance of a U.S. military strike on Syria in the near term along with all the spillover concerns,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “This coupled with the return of some Libyan crude production is sending prices lower.”

WTI crude for October delivery decreased $1.62 to $106.59 a barrel on the New York Mercantile Exchange., the lowest settlement since Aug. 26. The volume of all futures traded was 8.8 percent above the 100-day average at 3:25 p.m.

Brent oil for November settlement fell $1.63, or 1.5 percent, to end the session at $110.07 a barrel on the London-based ICE Futures Europe exchange. It was the lowest close since Aug. 22. Volume was 29 percent above the 100-day average. The European benchmark traded at a $3.88 premium to November WTI at today’s settle.

Syria Talks

Kerry and Russian Foreign Minister Sergei Lavrov agreed Sept. 14 on a framework for locating and destroying Syria’s stockpiles of poison gas. The plan gives President Bashar al-Assad’s government one week to submit an inventory of its toxic weapons and calls for initial inspections by November.

“Assad has lost all legitimacy,” Kerry said at a press conference today in Paris. “We remain committed to the opposition and committed to the Geneva process which calls for a transition government. That’s our end strategic goal here.”

The focus now shifts to New York, where the UN is preparing to release, as early as today, an inspection team’s report on an Aug. 21 chemical weapons strike outside Damascus that the U.S. says killed more than 1,400 people.

Regional Production

WTI rose to a two-year high on Aug. 28 amid concern that a U.S.-led assault would widen the conflict and disrupt Middle East exports. Syria borders Iraq and is as near as 150 miles (240 kilometers) to Iran. Its two neighbors together control almost a fifth of the production capacity in the Organization of Petroleum Exporting Countries, Bloomberg estimates show. The Middle East accounted for 35 percent of global oil output in the first quarter, the International Energy Agency said.

President Barack Obama delayed 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 chemical arsenal.

“The last few weeks, the market has been in a Syria-headline-driven bubble,” said Stephen Schork, president of the Schork Group Inc., an energy advisory company in Villanova, Pennsylvania. “Now that the talk has gone from hawkish to dovish, the Syria premium is getting excised from the market.”

Libya’s crude production has dropped to 250,000 barrels a day, compared with a capacity of about 1.6 million, Deputy Oil Minister Omar Shakmak said Sept. 12.

Abdulwahhab El-Gayedi, head of the Libyan parliament’s oil-industry crisis group, announced in Tripoli that operations were restored at the El Feel and Sharara fields, Lana said. The country’s Zawiya refinery is receiving crude from the fields by pipeline, the plant’s oil-movement coordinator Mansur Abdallah said today in a telephone interview.

Market Range

“We been stuck in a $104-to-$112 range for more than a month,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “One price support is the removal of Libyan oil from the market. There are signs of some improvement but we will have to see a lot more return before falling much further.”

WTI has traded between $103.50 and $112.24 since Aug. 9.

Hedge funds cut bullish bets on WTI to the fewest in nine weeks. Money managers reduced net-long positions, or wagers that prices will increase, by 5.2 percent to 290,058 futures and options combined in the seven days ended Sept. 10, the Commodity Futures Trading Commission’s Commitments of Traders report showed Sept. 13.

Crude rebounded from the day’s lows after equities rallied as Lawrence Summers withdrew his bid to become Federal Reserve chairman. The Standard & Poor’s 500 Index climbed 0.6 percent and the Dow Jones Industrial Average rose 0.8 percent.

Fed Meeting

Summers would have tightened Fed policy more than Janet Yellen, who was his main rival to replace Chairman Ben S. Bernanke, according to a Bloomberg Global Poll last week. The Federal Open Market Committee, meeting tomorrow and Sept. 18, will probably reduce monthly asset purchases by $10 billion to $75 billion, a separate survey of economists showed.

“The upcoming Fed meeting will soon be the focus,” McGillian said. “Reduced stimulus would send oil lower.”

Implied volatility for at-the-money WTI options expiring in November was 21.5 percent, up from 21.2 percent on Sept. 13, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 599,222 contracts as of 3:25 p.m. It totaled 416,632 contracts Sept. 13, 27 percent below the three-month average. Open interest was 1.93 million contracts, the most since Aug. 13.

To contact the reporters on this story: Mark Shenk in New York at mshenk1@bloomberg.net

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

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