WTI Crude Falls to 1-Month Low as Libyan Output Rebounds

West Texas Intermediate dropped to a one-month low as Libya’s oil production rose and the threat of military strikes against Syria receded, damping concern that Middle East supplies may be cut.

Futures capped the biggest weekly drop in three months. Libyan output yesterday was more than five times higher than earlier this month and Iraqi capacity is rising, government officials said. Syria disclosed an initial inventory of chemical weapons as Iranian President Hassan Rohani said his country will never seek nuclear arms. The fall accelerated on concern that wrangling over spending may shut the U.S. government.

“The stars are aligning for a bearish market,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “Libyan and Iraqi production is rising, which will lead to greater supply. The Syrian and Iranian situations appear to be calming down, which is tapering the geopolitical premium a little bit.”

WTI crude for October delivery, which expired today, fell $1.72, or 1.6 percent, to $104.67 a barrel on the New York Mercantile Exchange, the lowest settlement since Aug. 21. Prices slid 3.3 percent this week, the biggest five-day drop since June. The more actively traded November contract slipped $1.11, or 1 percent, to $104.75. The volume of all futures traded was about 8.4 percent below the 100-day average at 3:18 p.m.

Brent Futures

Brent oil for November settlement rose 46 cents, or 0.4 percent, to end the session at $109.22 a barrel on the London-based ICE Futures Europe exchange. Futures fell 3.2 percent this week. Volume was 24 percent lower than the 100-day average. The European benchmark traded at a $4.47 premium to WTI, up from $2.90 at yesterday’s close.

“WTI is expiring today,” said Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a research company in London. “A lot of positions were playing the October-November time spreads.”

Libyan oil output is set to increase to 800,000 barrels a day, Ibrahim Al Awami, director of measurement at the oil ministry, said by phone from Tripoli yesterday. Supply fell as low as 150,000 barrels earlier this month, compared with a 2013 high of 1.4 million in April, the International Energy Agency said in a Sept. 12 report.

Iraqi crude production capacity will exceed 3.6 million barrels a day by the end of the year, two officials from the oil ministry said today. They asked not to be identified because they aren’t authorized to speak on matter.

Syria Accord

Oil prices will drop further next week after a U.S.-Russian agreement reduced the risk of an American attack on Syria, according to a Bloomberg survey of 34 analysts. The accord was reached on Sept. 14 in Geneva and sets a timetable for President Bashar al-Assad to declare, secure and then eliminate his entire chemical arsenal. WTI reached a two-year high on Aug. 28 amid concern that a U.S.-led assault would widen the Syrian conflict.

The Organization for the Prohibition of Chemical Weapons has “received an initial disclosure from the Syrian government of its chemical weapons program, which is now being examined by the technical secretariat of the organization,” the Netherlands-based group said in a statement.

“The market is falling on the easing of Middle East geopolitical fears,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “It looks like Libya has sorted through a number of the problems that have cut oil output and we should see a recovery. The Syria situation has calmed down a great deal as well.”

Middle East

Syria borders Iraq and is near Iran, which together control almost a fifth of oil-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 of this year, according to the IEA.

Rohani said in an interview aired Sept. 18 on NBC that Iran won’t develop nuclear weapons. He added that he had “full authority” to resolve issues surrounding the atomic program. Iran, the target of international sanctions over its nuclear program, was OPEC’s second-largest crude producer as recently as June 2012, trailing Saudi Arabia. It’s now in sixth place.

“There’s obviously a lot of diplomatic activity occurring between the U.S. and Iran,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The possible improvement of relations between the two countries will continue to be a major focus of the market.”

Shutdown Threat

Equities slipped and commodities extended losses after the House of Representatives voted to finance the government through mid-December and choke off funding for President Barack Obama’s health-care law, setting up a showdown with the Senate and the White House.

House Republicans said they wouldn’t accept a plan by Senate Majority Leader Harry Reid, a Democrat, to remove the health-care language from the bill and warned of a shutdown next month.

The Standard & Poor’s 500 Index dropped 0.6 percent and the Dow Jones Industrial Average decreased 0.8 percent. The S&P’s GSCI Index of 24 raw materials fell as much 0.9 percent to 637.35. Only four of the 24 commodities gained.

Clive Capital LLP, the $1 billion commodity hedge-fund firm founded by Chris Levett, plans to close after posting more than two years of investment losses, according to a letter to clients. The London-based hedge fund will shut down at the end of the month, according to the letter, whose contents were provided to Bloomberg.

Clive Capital

“There is a big hedge fund shutting down, Clive Capital, and a lot of the moves the last two days have probably been them unwinding their positions,” Sen said.

Implied volatility for at-the-money WTI options expiring in November was 20.1 percent, up from 19.8 yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 510,140 contracts as of 3:18 p.m. It totaled 689,423 contracts yesterday, 8.3 percent above the three-month average. Open interest was 1.93 million contracts.