West Texas Intermediate fell from a two-year high as President Barack Obama struggled to convince Congress of the need for a military strike on Syria and Russia urged Syria to give up its stockpile of chemical weapons.
Futures slid 0.9 percent as lawmakers lined up against the president, reducing concern that the conflict may disrupt regional oil supply. Russian Foreign Minister Sergei Lavrov urged Syria take the step to avert a U.S.-led attack. Syrian Foreign Minister Walid al-Muallem said his government “welcomes” the Russian proposal. Brent oil was down more than twice as much as WTI.
“The delays in agreeing to any action in Syria are sending Brent lower and WTI is along for the ride,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “The president has a tough row to hoe. The ramifications of him not getting a yes vote are pretty big.”
WTI for October delivery dropped $1.01 to settle at $109.52 a barrel on the New York Mercantile Exchange. Prices rose to $110.53 on Sept. 6, the highest close since May 3, 2011. The volume of all futures traded was 2.6 percent below the 100-day average at 3:08 p.m. Prices have gained 19 percent this year.
Brent for October settlement declined $2.40, or 2.1 percent, to end the session at $113.72 a barrel on the London-based ICE Futures Europe exchange. Volume was 51 percent above the 100-day average. The European benchmark’s premium to WTI narrowed to $4.20, the least since Aug. 19.
Obama will make his case for U.S. military intervention in an address to the nation at 9 p.m. Washington time tomorrow.
The Senate is expected to vote on the resolution by the end of the week. Passage in the House of Representatives may be even tougher, given reservations expressed by lawmakers from both parties who say their constituents overwhelmingly oppose the resolution.
Some Republicans wary of U.S. involvement overseas have said they will vote no, as have some Democrats who warn of the risk of entering another Middle Eastern country.
“It’s unsure if anything will happen and we are seeing some pullbacks here,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. Prices are already “at an elevated level.”
In the 435-seat House, 26 members publicly support military action and 202 were opposed or leaning against the resolution as of Sept. 8, with 205 undecided, according to a Bloomberg tally. The House currently has two vacancies.
In the 100-member Senate, 22 members favored the measure, 26 were opposed and 52 were undecided, the tally showed.
Lavrov’s statement, made after meeting his Syrian counterpart in Moscow, followed comments by Secretary of State John Kerry that suggested the U.S. may call off a military strike if Syria handed over its chemical weapons within a week.
“Even if nothing happens, this kind of proposal should stall any move toward a military strike,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “At best it’s going to be postponed and at worst it may not happen. It’s bearish for the market.”
Russia, which has been using its United Nations Security Council veto power to shield Syrian President Bashar al-Assad from international censure and supplied his regime with weapons, has pledged to continue helping him if the U.S. launches a strike in retaliation for a gas attack in a Damascus suburb last month.
“I am considering urging the Security Council to demand immediate transfer of Syria’s chemical weapons and chemical precursor stocks to places inside Syria where they can be safely destroyed,” United Nations Secretary-General Ban Ki-moon told reporters today.
Crude rose for a second week in the five days ended Sept. 6 on concern that an escalation of the conflict in Syria may disrupt regional oil supplies.
“Perhaps the risk of an attack isn’t as big as we had feared and it’s taking some of the premium off the market,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago.
The Middle East accounted for about 35 percent of global oil production in the first quarter of this year, according to the International Energy Agency. 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.
Crude also declined as Sliman Qajam, a member of the Libyan parliament’s energy committee, said the country’s production rebounded to 600,000 barrels a day. Output was restored at all oil fields shut by protesters, and all export terminals will be open by middle of next week, Qajam said from Tripoli.
“We are seeing more oil production back out of Libya and that’s also helping weigh on things,” Kilduff said.
Implied volatility for at-the-money WTI options expiring in October was 26.3 percent, up from 25.6 percent on Sept. 6, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 537,830 contracts as of 3:42 p.m. It totaled 602,870 contracts on Sept. 6, 5.4 percent below the three-month average. Open interest was 1.90 million contracts.