West Texas Intermediate fell from a two-year high as the prospect of imminent attacks on Syria receded and as better-than-expected U.S. economic data raised speculation that the Federal Reserve will taper its stimulus.
Prices dropped 1.2 percent as the U.K. and France said they favor waiting for the results of a United Nations investigation into Syria’s alleged use of chemical weapons. The U.S. economy expanded at a faster pace in the second quarter and first-time jobless claims fell more than forecast last week, adding to concern the Fed will reduce its $85 billion monthly bond buying in September.
“Oil is taking out some of the immediate attack-risk premium in the market,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “The market is recalibrating when that attack may happen. The U.S. economy is getting better and that increases the odds of a September tapering.”
WTI for October delivery declined $1.30 to settle at $108.80 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 22 percent below the 100-day average for the time of day at 2:33 p.m. The contract climbed to $110.10 yesterday, the highest close since May 3, 2011. Prices are up 3.6 percent this month.
Brent for October settlement dropped $1.45, or 1.2 percent, to $115.16 a barrel on the London-based ICE Futures Europe exchange. Trading was 21 percent above the 100-day average. The European benchmark’s premium to WTI narrowed for the first time in four days, to $6.36.
U.K. Prime Minister David Cameron, the U.S.’s top ally, struggled to win parliamentary backing for military strikes on President Bashar al-Assad’s military capacity. He bowed to opposition demands to await a judgment by on-site United Nations inspectors.
The Obama administration is laboring to marshal conclusive evidence backing its assertions that Assad was directly responsible for the attack, said three intelligence officials familiar with the situation. The U.S. won’t act without allies, Defense Secretary Chuck Hagel said today.
Crude surpassed $110 yesterday on concern the conflict in Syria will spread and threaten Middle East oil supplies.
“The idea that nothing is going to occur imminently is pushing prices down,” said Tom Finlon, the Jupiter, Florida-based director of Energy Analytics Group LLC. “It takes a while for these countries to get their act together.”
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. Syria produced less than 1 percent of the 28.3 million barrels a day pumped in the Middle East last year, according to BP Plc’s Statistical Review of World Energy.
The Middle East accounted for 35 percent of global oil production in the first quarter of this year, International Energy Agency data showed.
“The oil markets are seeing some minor profit-taking as traders await further news regarding a possible military strike against Syria,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York, in an e-mail. The timetable for military strikes is “slipping,” he said.
U.S. gross domestic product rose at a 2.5 percent annualized rate in the second quarter, up from an initial estimate of 1.7 percent, Commerce Department figures showed today. The median forecast of 79 economists surveyed by Bloomberg projected a 2.2 percent gain.
Jobless claims in the week ended Aug. 24 dropped 6,000 to 331,000 from a revised 337,000 the week before that was higher than initially reported, the Labor Department said. The median forecast of 50 economists surveyed by Bloomberg called for a drop to 332,000.
Minutes of a July Fed meeting published Aug. 21 show that most central bank members were “broadly comfortable” with a plan to trim stimulus in 2013. About 65 percent of economists surveyed by Bloomberg Aug. 9-13 anticipated tapering in September.
“With a GDP number like that, is the likelihood of a slight reduction clear in September?” Finlon said. “I think so.”
The Bloomberg U.S. Dollar Index gained 0.5 percent to 1,033.69 at 2:50 p.m., which would be the highest closing level since Aug. 1. A stronger dollar reduces oil’s investment appeal.
Implied volatility for at-the-money WTI options expiring in October was 25.8 percent, down from 28 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 424,572 contracts as of 2:35 p.m. It totaled 669,695 contracts yesterday, 3.8 percent above the three-month average. Open interest was 1.85 million contracts.