WTI Falls to Eight-Week Low on Signs of U.S.-Iran Thaw

West Texas Intermediate crude fell to the lowest close in eight weeks on speculation that U.S.- Iranian relations are thawing and as the threat of an American military strike on Syria recedes.

Futures dropped 0.4 percent amid the possibility of contact between President Barack Obama and Iran’s Hassan Rohani at the United Nations General Assembly today in New York. Any interaction would have been a significant symbol of a shift in relations between the countries. The UN Security Council is working toward an agreement to disarm Syria’s chemical weapons.

“The market is reacting to speculation that we’re on the verge of a breakthrough in the Middle East,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The lowering of tensions between the U.S. and Iran, and an agreement about Syria’s chemical arms would go a long way to easing worries about the troubled region.”

WTI crude for November delivery declined 46 cents to $103.13 a barrel on the New York Mercantile Exchange. It was the lowest settlement since July 30. The volume of all futures traded was 7.3 percent below the 100-day average at 4:44 p.m. Prices have gained 6.8 percent this quarter, the most in a year, and are up 12 percent in 2013.

Prices were little changed after the American Petroleum Institute reported inventories dropped 54,000 barrels last week. The November contract slid 32 cents to $103.27 a barrel in electronic trading at 4:44 p.m. It was at $103.34 before the report was released at 4:30 p.m.

No Meeting

Brent oil for November settlement gained 48 cents, or 0.4 percent, to end the session at $108.64 a barrel on the London-based ICE Futures Europe exchange. Volume was 18 percent higher than the 100-day average. The European benchmark traded at $5.51 premium to WTI, the widest spread since Sept. 6.

Obama and Rohani won’t meet while in New York for the General Assembly, White House officials said after the oil-market settlement. While the U.S. was open to an informal exchange, such as a handshake, the Iranians decided against such a display, citing domestic political concerns, said the officials, who asked for anonymity to describe the private discussions.

Recent overtures from Iran may offer a basis for a “meaningful agreement” to resolve the confrontation over the Iran’s nuclear program, Obama told world leaders earlier today at the UN. Sanctions aimed at stopping the Islamic republic’s nuclear program have hindered its ability to export oil.

‘Conciliatory Words’

Iran is a key player in Syria’s civil war, nuclear proliferation and Middle East peace. It has the world’s fourth-largest proven oil reserves after Venezuela, Saudi Arabia and Canada, according to the BP Statistical Review of World Energy.

Any presidential encounter would have marked the first exchange between leaders of the two nations since the 1979 Islamic revolution, during which the U.S. embassy in Tehran was stormed and 52 Americans inside were held hostage for 444 days.

“Conciliatory words will have to be matched by actions that are transparent and verifiable,” Obama said. “The roadblocks may prove to be too great, but I firmly believe the diplomatic path must be tested.”

The U.S. said yesterday that Secretary of State John Kerry will meet with his Iranian counterpart as part of talks over the nuclear program, along with the other four permanent members of the Security Council, plus Germany.

Syrian Conflict

“The main reason for the decline in prices is the prospect that Obama and the new Iranian leader will meet today,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “There are also signs that progress is being made on an agreement that would remove Syria’s chemical arms. The reduction in worries about these two hot spots is putting downward pressure on the market.”

The Security Council is set to negotiate a Syria resolution. The U.S., the U.K. and France have accused government forces of carrying out a chemical attack on Aug. 21 that killed 1,400 people near Damascus. Syrian President Bashar al-Assad has blamed rebel groups. Russia rejected a plan to include enforcement in the resolution.

Oil rose to a two-year high on Aug. 28 amid concern that a U.S.-led assault would widen the Syrian conflict and disrupt Middle East shipments. Syria borders Iraq the second-biggest crude producing country in the Organization of Petroleum Exporting Countries, according to data compiled by Bloomberg.

Crude futures have retreated this month following an increase in Libyan production to 600,000 barrels a day. South Sudanese output returned to 240,000 barrels a day, and pumping began at Kazakhstan’s Kashagan field and Iraq’s Majnoon field.

Returning Production

Output in Nigeria, Africa’s largest crude-producing country, increased to 2.4 million barrels a day after sabotaged lines were restarted, Tumini Green, a spokeswoman at Nigerian National Petroleum Corp., said in an e-mailed statement. Supply dropped to 2.2 million in the first quarter, according to the state-owned company.

“Some fields are back in Libya, there are signs of improvement in Sudan and pipeline issues have been resolved in Nigeria, which may lead to increased output there,” said Michael Wittner, head of oil market research at Societe Generale SA in New York. “The market had been focused on the threat of supply disruption, both real and potential, and that’s fading.”

A government report tomorrow will probably show that U.S. crude supplies dropped to an 18-month low as refineries operated at more than 90 percent of capacity and oil imports slipped, a Bloomberg survey showed. Inventories fell 1 million barrels, or 0.3 percent, to 354.6 million as of Sept. 20, according to the median of 10 analyst estimates before an Energy Information Administration report tomorrow.

Implied Volatility

“The bulls and the bears are in balance,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “There’s been a big downturn in inventories which is bullish, while seasonal demand is set to fall which is bullish.”

Implied volatility for at-the-money WTI options expiring in November was 21.1 percent, up from 21 yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 523,161 contracts as of 4:45 p.m. It totaled 465,653 contracts yesterday, 26 percent below the three-month average. Open interest was 1.88 million contracts.

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