Brent Crude Falls to Four-Week Low on Syria Weapons Talks

Brent crude fell to its lowest in four weeks on signs that the threat of imminent military strikes against Syria is receding as the U.S. pursues a plan to confiscate the nation’s chemical weapons.

Futures dropped as much as 2.7 percent to the lowest since Aug. 20 as U.S. Secretary of State John Kerry met with French President Francois Hollande and his counterparts from France and the U.K. to build support for a plan to eliminate Syria’s chemical weapons. Libya’s Sharara oil field may start today or tomorrow after talks with protesters “produced some positive results,” Ibrahim Al Awami, the Oil Ministry’s director of measurement, said in a phone interview from Tripoli.

“Tensions over Syria are easing,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. “Fundamentally there is little to justify” current prices.

Brent for November settlement fell as much as $2.97 to $108.73 a barrel on the London-based ICE Futures Europe exchange. It was at $109.12 as of 1:04 p.m. local time. The front-month European benchmark was at a premium of $3.22 to West Texas Intermediate. The spread widened for a third day on Sept. 13 to $4.57.

WTI for October delivery slid as much as $1.81 to $106.40 a barrel in electronic trading on the New York Mercantile Exchange. Last week it lost 2.1 percent. The volume of all futures traded was 45 percent more than the 100-day average.

Libyan Output

Libya’s production has dropped to 250,000 barrels a day, compared with a capacity of about 1.6 million, Deputy Oil Minister Omar Shakmak said Sept. 12.

Kerry and Russian Foreign Minister Sergei Lavrov agreed on a framework in Geneva on Sept. 14 for locating and destroying Syria’s stockpiles of poison gas. The agreement gives President Bashar al-Assad’s government one week to submit an inventory of its toxic weapons and calls for initial inspections by November.

“I see Syria fading as a factor that’s moving oil markets,” Robin Mills, the head of consulting at Manaar Energy Consulting and Project Management in Dubai, said by phone yesterday. “The price had already come off a bit last week when it became evident there was no attack imminent.”

The diplomatic focus now shifts to New York, where the United Nations is preparing to release, as early as today, an inspection team’s report on an Aug. 21 chemical weapons strike outside Damascus that the U.S. says killed more than 1,400 people.

Delayed Strike

WTI rose to a two-year high on Aug. 28 amid concern that a U.S.-led assault would widen the conflict and disrupt Middle East exports. Syria borders Iraq and is as near as 150 miles (240 kilometers) to Iran; its two neighbors together control almost a fifth of the production capacity in the Organization of Petroleum Exporting Countries, Bloomberg estimates show. The Middle East accounted for 35 percent of global oil output in the first quarter, the International Energy Agency said.

President Barack Obama delayed possible U.S. military intervention twice: first on Aug. 31 to consult Congress, then on Sept. 10 to consider Russia’s proposal for international oversight of Syria’s chemical arsenal.

Hedge funds cut bullish bets on WTI to the least in nine weeks as the U.S. and Russia cobbled an agreement. Money managers reduced net-long positions, or wagers that prices will increase, by 5.2 percent to 290,058 futures and options combined in the seven days ended Sept. 10, the Commodity Futures Trading Commission’s Commitments of Traders report showed on Sept. 13. That was the lowest level since July 9.

ICE exchange will release similar data for Brent crude at about midday London time.

Hurricane Ingrid

Hurricane Ingrid was set to make landfall today on Mexico’s east coast, moving away from the Bay of Campeche where Petroleos Mexicanos has its two largest oil fields.

The center of Ingrid, the second hurricane of the Atlantic season, will cross the Mexican coast “later this morning or early this afternoon” and then begin to weaken, according to the U.S. National Hurricane Center in Miami.

Petroleos Mexicanos, known as Pemex, suspended air and sea operations at its rigs in the Bay of Campeche, according to a company statement. The oil ports of Cayo Arcas, which processes about 68 percent of Mexico’s crude exports, and Dos Bocas were closed, the Merchant Marine said in its daily weather bulletin.

Oil investors are anticipating that the U.S. Federal Reserve will begin scaling back economic stimulus, said Ric Spooner, chief market analyst at CMC Markets in Sydney. “The initiative will be small,” he said.

The Federal Open Market Committee, meeting Sept. 17-18, will probably reduce monthly asset purchases to $75 billion from $85 billion, according to the median estimate of 34 economists surveyed by Bloomberg News.

WTI has technical support along its 30-day middle Bollinger Band, at about $107 a barrel today, data compiled by Bloomberg show. Front-month futures have halted intraday declines near this indicator the past four days. Buy orders tend to be clustered around chart-support levels.

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