WTI Falls a Second Day as Concern Eases on Syria Strike
West Texas Intermediate crude fell for a second day as signals that an attack against Syria isn’t imminent reduced concern that supplies will be disrupted.
Futures dropped 1.1 percent a day after the U.K. House of Commons rejected a proposal by Prime Minister David Cameron seeking a military response to what he says is evidence of the use of chemical weapons by Syria. WTI oscillated as Secretary of State John Kerry said the U.S. has “high confidence” that the Syrian government used the weaponry. Kerry and President Barack Obama said a military action would be limited in scope.
“The U.K. Parliament’s rebuke of the prime minister’s call for military intervention in Syria has chilled expectations for an attack in the near future,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “The action has eased concerns about a potential disruption to oil supplies.”
WTI crude for October delivery dropped $1.15 to settle at $107.65 a barrel on the New York Mercantile Exchange. Trading was 18 percent below the 100-day average at 2:50 p.m. The contract lost 1.2 percent yesterday from a two-year high on Aug. 28. Prices climbed 1.2 percent this week and 2.5 percent in August, a third monthly gain. There will be no floor trading in New York on Sept. 2 for the U.S. Labor Day holiday.
Brent oil for October settlement declined $1.15, or 1 percent, to end the session at $114.01 a barrel on the London-based ICE Futures Europe exchange. The European benchmark traded at $6.36 premium to WTI, unchanged from yesterday.
“This kind of attack is a challenge to the world,” Obama said in brief remarks at the White House today. He added that he hasn’t made a final decision on his response except that “in no event” will it involve U.S. troops on the ground in Syria.
France signaled it might act as the principal U.S. ally in a military strike against Syria, filling a hole left by Britain’s desertion of Obama yesterday. Hours after the U.K. vote, French President Francois Hollande said he still favors delivering a targeted blow, bypassing a stalemated United Nations Security Council if necessary.
“U.K. participation in a Syria strike looks pretty unlikely in the near future,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd. in London. “There will probably be a U.S. airstrike, but then the civil war will continue, and Brent will go back below $110.”
U.S. intelligence agencies determined Syrian President Bashar al-Assad’s forces probably used chemical weapons in an Aug. 21 attack that killed at least 1,429 people, including 426 children, Kerry said at the State Department in Washington. He spoke as the White House released a public version of its intelligence assessment of last week’s attack.
“The premise that oil supplies would be threatened by what will probably be a limited attack by cruise missiles on Syria, a country that’s not an oil exporter or conduit, is specious,” said Stephen Schork, president of the Schork Group Inc., an energy advisory company in Villanova, Pennsylvania. “The Syrians have very limited capabilities and the Iranians have no interest in reducing shipments because they need the currency.”
The Middle East accounted for about 35 percent of global oil production in the first quarter of this year, according to data from the International Energy Agency. Syria shares a border with Iraq, the second-largest producer in the Organization of Petroleum Exporting Countries.
“We will probably end up talking about the same issues when we come in on Tuesday, but you can never be sure that there won’t be action taken in the meantime,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.6 billion. “If there is an attack, you are going to get retaliation, and even though Syria isn’t a major producer, they are close to countries that are.”
Societe Generale SA said Brent prices may reach $150 if the Syria conflict spreads and disrupts supply from the region, according to an e-mailed report on Aug. 28. The record is $147.50 on July 11, 2008.
Oil also slipped as the International Energy Agency said the global market doesn’t require the release of emergency stockpiles. The IEA is monitoring the market and “stands ready” to respond if there’s a major supply disruption, the adviser to 28 energy-consuming nations said in an e-mailed statement yesterday.
The Paris-based agency coordinated the release of 60 million barrels of crude and fuel in June 2011, when an uprising against Muammar Qaddafi almost halted Libya’s oil exports. Brent fell 8 percent in the two days after the announcement of that intervention, the third use of reserves in the IEA’s 39-year history.
Saudi Arabia, OPEC’s top producer, will probably keep its output in September at similar levels to this month and July, according to a person with knowledge of the kingdom’s oil policy. The world’s biggest crude exporter produced 10.03 million barrels a day in July, the person said, asking not to be identified because the matter is confidential.
Separately, a Bloomberg monthly survey published yesterday showed the kingdom’s August production at an average rate of 9.95 million barrels a day, the most in monthly data going back to 1989.
WTI may increase next week on the prospect of an attack against Syria, according to a slim margin in a Bloomberg survey of 37 analysts and traders. Sixteen, or 43 percent, forecast futures will gain through Sept. 6, while 15 respondents predicted a drop and six said there will be no change.
Implied volatility for at-the-money WTI options expiring in October was 25.9 percent at 3:55 p.m., up from 25.7 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 463,994 contracts as of 3:59 p.m. It totaled 513,845 contracts yesterday, 20 percent below the three-month average. Open interest was 1.86 million contracts.
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