BLBG:WTI Oil Falls From 2-Year High as Syria Strike Debated
West Texas Intermediate fell from the highest settlement since May 2011 as the debate among western nations on intervening in Syria eased concerns of an imminent strike against the Middle Eastern nation.
Futures slid as much as 1.3 percent in New York after surging yesterday on concern the conflict in Syria may spread and threaten oil supplies from the Middle East. Russia yesterday raised objections to a U.K. draft of a United Nations Security Council resolution for the use force while British Prime Minister David Cameron retreated from asking lawmakers for immediate support for military strikes. Brent crude’s relative strength index climbed to a one-year high of 77.3 yesterday, signaling prices had advanced too quickly.
“The U.S.-led coalition is losing momentum,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. “I don’t expect much downside though, and a potential quick strike over the weekend would still push” crude toward the highest levels of the year, he said.
WTI for October delivery declined as much as $1.50 to $108.60 a barrel in electronic trading on the New York Mercantile Exchange and was at $109.08 at 9:49 a.m. London time. The volume of all futures traded was about 10 percent above the 100-day average. The contract climbed 1 percent to $110.10 yesterday, the highest close since May 3, 2011.
Brent for October settlement declined as much as $1.67, or 1.4 percent, to $114.94 a barrel on the London-based ICE Futures Europe exchange, slipping from the highest close since Feb. 19. The European benchmark crude was at a premium of $6.44 to WTI. The spread widened for a third day yesterday to $6.51.
Syrian Unrest
U.S. President Barack Obama and the U.K.’s Cameron face a decision whether to attack Syria for its alleged use of chemical weapons amid Russian resistance and without a UN mandate. Any use of force won’t be limited to a one-day operation, according to a U.S. official, who asked not to be identified discussing war-planning efforts.
Cameron pledged last night to hold an additional vote in Parliament before the country proceeds with any action, after the Labor opposition demanded a delay until UN inspectors report on the alleged chemical attack.
The Middle East accounted for 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 OPEC’s second biggest producer, Iraq.
Price Retreats
In previous instances, oil prices have sometimes retreated once military action begins and the scope of the conflict becomes more defined. WTI tumbled 9.9 percent in May 2011 as the North Atlantic Treaty Organization bombarded Libya and U.S. forces killed Osama bin Laden. Futures lost 15 percent in March 2003 as a U.S.-led coalition invaded Iraq with the mission of toppling President Saddam Hussein.
Options to bet on a 10 percent advance in WTI for October delivery became more expensive than for a drop of the same magnitude on Aug. 27, according to data from the Nymex. The volume of contracts giving the right to buy WTI at $125 a barrel, about $15 more than current levels, rose more than 10-fold that day, the data show.
U.S. crude inventories increased by a larger-than-expected 2.99 million barrels to 362 million barrels in the week ended Aug. 23, the biggest gain in four months, an Energy Information Administration report showed yesterday.
Gasoline Stockpiles
Gasoline stockpiles slid by 587,000 barrels, said the EIA, the Energy Department’s statistical arm. They were forecast to decline by 1.38 million barrels. Distillate inventories, including heating oil and diesel, fell by 316,000 barrels, compared with a projected 550,000 barrel increase.
“Once you deflate the Middle Eastern tension and get back to economics, they suggest that oil should be sub-$100” a barrel, said Jonathan Barratt, the chief executive officer of Barratt’s Bulletin in Sydney. “Take this as a bump but the fundamentals at play still say anything over these levels for oil is expensive.”
Brent may extend losses as a technical indicator shows the market remains overbought. The 14-day relative strength index is above 70 for a third day, according to data compiled by Bloomberg. A reading higher than that level signals prices may have advanced too quickly to be sustainable.
To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net Grant Smith in London at gsmith52@bloomberg.net
To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net
