(For more on the Syria conflict, see EXTRA.)
Aug. 29 (Bloomberg) -- West Texas Intermediate fell from the highest settlement since May 2011 amid easing concern of an imminent American-led strike against Syria.
Futures slid as much as 1.4 percent in New York as the U.K. and France said they favor waiting for the results of a United Nations investigation into President Bashar al-Assad’s alleged use of chemical weapons. Prices surged yesterday on concern the conflict in Syria may spread and threaten oil supplies from the Middle East. Brent’s 14-day relative strength index stayed above 70 for a third day, according to data compiled by Bloomberg, signaling gains may have been exaggerated.
“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 stood at $109.32 as of 1:26 p.m. London time. The volume of all futures traded was 17 percent below 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 was at a premium of $6.74 to WTI, the gap widening for a fourth consecutive day.
U.S. President Barack Obama and U.K. Prime Minister David Cameron face a decision about whether to attack Syria for its alleged use of chemical weapons amid Russian resistance and without a UN mandate.
Cameron is backing away from a bid to win swift parliamentary approval for attacks on Assad’s military capacity. France said action requires “proof,” pointing to a report due within days by UN inspectors probing the location of last week’s chemical attack near Damascus.
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 the past two days, the data show.
Brent would briefly rally to as much as $130 a barrel in the event of a limited operation, Bank of America Corp. said in a report dated yesterday.
“The most likely scenario remains a short-lived oil spike to a price range of $120 to $130 a barrel, assuming a NATO-led contained military strike that lasts for only a few days,” said Francisco Blanch, the bank’s head of commodities research in New York. Prices could surge $50 if “Syria turns into a protracted Vietnam-style boots-on-the ground proxy war,” he said.
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 Iraq, OPEC’s second-biggest producer.
Oil prices have retreated in the past once military action begins. WTI tumbled 9.9 percent in May 2011 as the North Atlantic Treaty Organization bombarded Libya. Futures lost 15 percent in March 2003 as a U.S.-led coalition invaded Iraq with the mission of toppling President Saddam Hussein.
“Prices could come off steeply” after an attack “as the likelihood of a violent response from Syria, Iran or Russia is seen as low and actual supply losses should remain small,” Ed Morse, head of global commodities research at Citigroup Global Markets Inc. in New York, said in a report yesterday.
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, the Energy Information Administration reported yesterday.
--With assistance from Ben Sharples in Melbourne. Editors: Stephen Voss, Justin Carrigan