Oil Falls Fourth Time in Five Days as Libya Output Rises

West Texas Intermediate crude fell for the fourth time in five days as Libya’s oil output increased and Syrian President Bashar al-Assad said he will provide international inspectors access to chemical weapons facilities.

Prices dropped 1.6 percent. Libya’s El Feel and Sharara oil fields have reopened and will boost production levels, according to the Oil Ministry. Crude climbed to a two-year high Aug. 28 on concern that Syrian tensions would spread and trim Middle East exports. Futures also slid after the biggest rally in three weeks yesterday as the Federal Reserve retained stimulus.

“Libya is certainly weighing on prices,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “With the run-up based on Syria, we had a bit of a bubble being inflated, and when you cut off those headlines, all of that bubble is getting deflated.”

WTI for October delivery, which expires tomorrow, slid $1.68 to settle at $106.39 a barrel on the New York Mercantile Exchange, the biggest drop since Sept. 10. It surged 2.5 percent yesterday, the biggest increase since Aug. 27. The volume of all futures traded was 4.8 percent above the 100-day average at 3:36 p.m. The more active November contract was down $1.42, or 1.3 percent, to $105.86.

Brent for November settlement decreased $1.84, or 1.7 percent, to end the session at $108.76 a barrel on the London-based ICE Futures Europe exchange. Volume was 11 percent above the 100-day average. The European benchmark crude’s premium to WTI for the same month shrank 42 cents to $2.90, the narrowest level since Aug. 12.

Libyan Oil

Libya’s production will rise to 700,000 to 800,000 barrels a day today, Ibrahim Al Awami, the oil ministry’s director of measurement, said by phone from Tripoli. The export terminals of Brega, Zawiya and Mellitah are also operational, he said.

Output from the North African country slumped to about 200,000 barrels a day as oil fields and ports were shut amid protests, National Oil Corp. Chairman Nuri Berruien said in an interview Aug. 27. El Feel and Sharara, with a combined capacity of 440,000 barrels a day, were halted by protesters on Aug. 26.

“The expectation that Libya’s oil production will come back is one of the primary drivers of the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “There seems to be progress going on in Syria. Oil is taking some of the Fed premium off the market.”

Libya, a member of the Organization of Petroleum Exporting Countries, has a capacity of 1.55 million, according to Bloomberg data.

‘Downward Pressure’

“Reports that we’ll see more oil from Libya are putting pressure on the market,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “We should see some downward pressure because of the easing tension in Syria.”

Meeting the disclosure and inspection conditions under the Chemical Weapons Convention, the international accord banning such arms, is “no problem, we can do it tomorrow,” Assad said in an interview with Fox News that aired yesterday.

Russian President Vladimir Putin said today in Valdai, Russia, that he isn’t “100 percent” certain that Assad will fulfill his commitment to give up chemical weapons.

Syria borders Iraq and is near Iran, countries that together hold almost a fifth of the output capacity from OPEC, 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.

Iranian President

Iranian President Hassan Rohani said in an interview aired last night on NBC that Iran won’t develop nuclear weapons. The country, the target of international sanctions over its nuclear program, was OPEC’s second-largest crude producer as recently as June 2012, trailing Saudi Arabia. It’s now in sixth place.

Rohani said he’s exchanged letters with President Barack Obama in the last month and has named Mohammad Javad Zarif, a diplomat known as a moderate, as his foreign minister and chief nuclear negotiator.

“Given the bearish news out of Libya and the signs that Rohani may be willing to compromise with the West, I am surprised we aren’t lower,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. The market is “taking a break” after yesterday’s big jump, he said.

The Fed unexpectedly refrained from reducing the $85 billion pace of monthly bond buying yesterday. The central bank began its third round of so-called quantitative easing in September 2012 with $40 billion in monthly mortgage bond purchases, and added $45 billion in monthly Treasury purchases in December.

‘Step Back’

“The market has taken a general step back after all the action yesterday,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. “You are seeing an awful lot of investors reassess their positions after what happened” with the Fed.

Implied volatility for at-the-money WTI options expiring in November was 20 percent, down from yesterday’s 21.7, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 586,513 contracts as of 3:36 p.m. It totaled 732,026 contracts yesterday, 15 percent above the three-month average. Open interest was a record 1.94 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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