Crude Drops to Six-Week Low on Waning Syria Concern

West Texas Intermediate crude fell to a six-week low on easing concern that Syria’s conflict will disrupt supplies and on rising production in Nigeria and Libya.

Crude dropped 1.1 percent as the United Nations Security Council worked toward a resolution based on the Geneva accord between the U.S. and Russia. The Organization for the Prohibition of Chemical Weapons said Sept. 20 it received an initial disclosure from Syria. Nigeria restored flows from three trunk pipelines that were sabotaged by vandalism and theft. WTI also slid on concern wrangling over spending may shut the U.S. government.

“The Syria premium has basically been taken out of the market,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “We’ve got more production coming back to the market. We are re-establishing the downward move that probably can take us down to $102 pretty easily.”

WTI for November delivery slid $1.16 to $103.59 a barrel on the New York Mercantile Exchange, the lowest settlement level since Aug. 8. The volume of all futures traded was 21 percent less than the 100-day average for the time of day. The futures have gained 7.3 percent this quarter and 13 percent this year.

Brent for November settlement fell $1.06, or 1 percent, to $108.16 a barrel on the London-based ICE Futures Europe exchange. Volume was 19 percent below the 100-day average. The European benchmark’s premium to WTI was $4.57, up from $4.47 on Sept. 20.

UN Action

The UN Security Council is set to negotiate a Syria resolution this week, as world leaders travel to New York for the opening of the General Assembly. The U.S., the U.K. and France have accused Syrian government forces of carrying out an Aug. 21 chemical attack that killed 1,400 people, including more than 400 children. Syrian President Bashar al-Assad has blamed rebel groups for the attack. Russia, a Syrian ally, rejected a plan to include enforcement in the resolution.

Ben Rhodes, White House deputy national security adviser, said Sept. 20 that it was “a positive step” for Syria to submit the list within the period outlined in the agreement, which calls for the Arab country to turn over its chemical weapons to international control for eventual destruction.

“You could say we are down on a peace dividend,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York.

Iran Action

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. The Middle East accounted for 35 percent of global oil production in the first quarter of this year, according to the International Energy Agency.

Iran has freed 80 political prisoners before President Hassan Rohani’s trip to the UN, state-run Fars news agency reported today, citing judiciary spokesman Gholamhossein Mohseni-Ejei. It will be the first UN speech for Rohani, who swept to power with a vow to improve relations with the world.

“The market is not seeing any geopolitical premium and there is no imminent military action against Syria,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “You’ve got production coming back in Nigeria and Libya. That’s really weighing on prices.”

Libya Output

Restarting the lines boosted Nigeria’s daily output to 2.4 million barrels, Tumini Green, a spokeswoman for the state-owned Nigerian National Petroleum Corp., said in an e-mailed statement. Output fell to 2.2 million in the first quarter in Africa’s largest oil producer, according to the company.

In Libya, oil production climbed to more than 600,000 barrels a day and all fields in the west of the country are producing, Sliman Qajam, the deputy head of the parliament’s energy committee, said yesterday in a phone interview in Tripoli.

Supply from Libya has rebounded from 150,000 barrels earlier this month, compared with a 2013 high of 1.4 million in April, according to the IEA’s monthly report on Sept. 12. Five of nine export terminals were operating as of Sept. 19.

Traders were also watching to see how the U.S. Congress and President Barack Obama dealt with looming budget issues that may result in a government shutdown, debt default or a close call that affects investor confidence or economic demand.

“There is a lot of uncertainty about what’s going to happen with the budget talks,” Armstrong said. “The possibility of another fiscal crisis is pulling down the market.”

Equities Slip

Crude also followed declines in U.S. stocks. The Standard & Poor’s 500 Index dropped 0.4 percent as of 2:35 p.m.

“The prospect of a government shutdown is making people nervous, which is being reflected in the S&P,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “Libyan and Nigerian oil is flowing again, which is also bearish.”

Implied volatility for at-the-money WTI options expiring in November was 20.8 percent, up from 20.1 percent on Sept. 20, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 418,522 contracts as of 2:35 p.m. It totaled 562,781 contracts on Sept. 20, 11 percent below the three-month average. Open interest was 1.9 million contracts.

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