West Texas Intermediate crude climbed a second day ahead of talks between the U.S. and Russia to resolve the crisis in Syria, a conflict that’s bolstered concern that Middle Eastern oil supplies may be disrupted.
Futures rose 1 percent as U.S. Secretary of State John Kerry met in Geneva with Russian Foreign Minister Sergei Lavrov to discuss a plan for Syria to surrender its chemical weapons. President Barack Obama has made their use the rationale for a potential attack on Syrian President Bashar al-Assad’s war-making ability. Assad made what may be unacceptable conditions for the U.S., saying that threats and arming rebels must end.
“We’re up on continuing angst about the Syria situation,” said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at Manulife Asset Management in Boston. “The chances that there will be a positive resolution to these complicated issues are slim. Middle East concerns will override the fundamentals in the near term.”
WTI crude for October delivery advanced $1.04 to settle at $108.60 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 6 percent lower than the 100-day average at 3:36 p.m.
Brent oil for October settlement gained $1.13, or 1 percent, to end the session at $112.63 a barrel on the London-based ICE Futures Europe exchange. October futures expire tomorrow. The more actively traded November contract rose $1.34, or 1.2 percent, to $111.53. Volume was 27 percent above the 100-day average.
The front-month European benchmark crude traded at a $4.03 premium to WTI, up from $3.94 at yesterday’s close.
Kerry and Lavrov’s talks are slated to run through tomorrow. The focus will be on the practicalities of securing, transporting, destroying and monitoring Syria’s chemicals arsenal, a U.S. official said. Negotiations won’t be about the text of a United Nations resolution that could govern the enforcement of a plan, the official told reporters on condition of anonymity.
The official also acknowledged the difficulty of establishing security for weapons inspectors in the middle of the Syrian civil war that has killed more than 100,000 people. The U.S. says Assad’s regime used sarin gas Aug. 21 outside of Damascus, killing more than 1,400 people.
“There’s increasing skepticism that the talks will pan out,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “Prices are up on the likelihood this won’t work out. Chances are that this will fall apart and Obama will have to either put up or shut up.”
One test would be how quickly Assad discloses his full 1,000-ton inventory of chemical weapons, the official said. The official also said it will be difficult to provide security for weapons inspectors in the middle of a civil war.
Assad set conditions in an interview broadcast today by Russia’s state Rossiya 24 news channel. “First of all, the U.S. needs to stop its policy of threats against Syria,” Assad said, according to a translation of his first public comments since Russia announced its diplomatic initiative this week.
Syria delivered to the UN a document to begin the process of joining the Chemical Weapons Convention, Farhan Haq, a UN spokesman, said in New York today.
“There’s a growing recognition that the disarming of Syria’s chemical weapons isn’t achievable,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “This has led to increasing skepticism, which has led to an increase in the security premium.”
The Middle East accounted for about 35 percent of global oil output in the first quarter of this year, according to the IEA. Syria borders both Iraq, the Organization of Petroleum Exporting Countries’ biggest crude-producing country after Saudi Arabia and Turkey, a major conduit of supplies from northern Iraq and Azerbaijan to global markets.
“The market has a good entry point to go long oil again as the Syrian issue is far from being solved,” said Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas SA in London. “Perhaps we are just postponing an inevitable re-escalation in tension.”
Long positions are wagers that prices will increase.
The International Energy Agency cut estimates for the amount of crude OPEC will need to provide next year as supplies from North America surge. Demand for crude from OPEC in 2014 will be 29.2 million barrels a day, or 1.3 million lower than the group’s current production levels, the IEA said today in its monthly market report.
Saudi Arabian Oil Minister Ali al-Naimi said today that the global crude market is well-supplied and geopolitical concerns are dominating. He spoke at a conference in Seoul. OPEC Secretary-General Abdalla El-Badri echoed similar views at the same event and said that there’s no need for the 12-member group to act even as Libya struggles to end protests at oil fields and ports that have reduced exports.
“Most of Libya’s output is offline, which is helping support the market,” Hodge said. “Rising production in the U.S. means that the overall supplies are ample. Events like Libya, though, will have a temporary impact on the market.”
Libya declared force majeure on loadings from Mellitah, Hariga, Zawiya ports, a note from state-owned National Oil Corp. showed. Force majeure is a legal step that protects a company from liability when it can’t fulfill a contract for reasons beyond its control. Libya declared force majeure at Es Sider, Ras Lanuf and Zueitina harbors on Aug. 18.
“Most of the sentiment earlier in the week that some parts of Libyan production could be returned has been swiftly reversed today,” said Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a research company in London.
Implied volatility for at-the-money WTI options expiring in November was 21.8 percent, down from 22.6 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 520,042 contracts as of 3:36 p.m. It totaled 535,263 contracts yesterday, 15 percent below the three-month average. Open interest was 1.92 million contracts.