The price of West Texas Intermediate, the U.S. benchmark crude oil, fell the most in two weeks on Wednesday as the U.S. considered limiting the scale of military strikes on Syria.
Futures dropped 1.2 percent. The Senate Foreign Relations Committee passed a resolution authorizing the “tailored” use of force. It was the first test of congressional support for President Barack Obama’s plan to attack Syria in response to the alleged deployment of chemical weapons against civilians.
“As the market begins to expect a more limited involvement for the United States in Syria and a more limited potential expansion of the conflict, it’s taking some of the premiums off the top,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant.
WTI for October delivery slid $1.31 to settle at $107.23 a barrel on the New York Mercantile Exchange, the biggest decrease since Aug. 20. Prices have jumped 17 percent this year. The volume of all futures traded was 21 percent below the 100-day average at 3:59 p.m.
Brent for October settlement slid 77 cents, or 0.7 percent, to $114.91 a barrel on the London-based ICE Futures Europe exchange. The volume of all futures traded was 21 percent above the 100-day average. Brent’s premium to WTI widened to $7.68 a barrel from $7.14 Tuesday.
The Senate vote is “a key event today,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago.
The draft legislation supports the use of force in a “limited and tailored manner against legitimate military targets” during a 60-day period following enactment, with a possible 30-day extension at the president’s request. The resolution doesn’t authorize the use of U.S. ground troops in combat. The full Senate will consider it next week.
“I believe that Congress will approve” a resolution authorizing force, Obama said at a news conference Wednesday in Stockholm. “In the face of such barbarism,” the international community cannot be “silent.”
Obama visited Sweden Wednesday on his way to a Group of 20 summit in St. Petersburg, Russia.
Russian President Vladimir Putin said the U.S. Congress has no right to approve military action against Syria because that’s strictly the purview of the United Nations Security Council. Putin has said he will only support a Security Council resolution for military strikes if there is conclusive proof that the Syrian government used chemical weapons. Russia has veto power in the council.
“No congress in any one country can authorize such things,” he said at the Kremlin. “What Congress and the Senate are doing now is essentially legitimizing aggression. This is unacceptable.”
WTI jumped to a two-year high last week as signs of an imminent U.S. attack on Syria bolstered speculation the conflict will spread and disrupt Middle East oil supplies. The region accounted for about 35 percent of global crude production in the first quarter of this year, according to the International Energy Agency.
“When you have a market that’s overdone, it’s got to come off at some point,” said Ed Morse, Citigroup’s global head of commodity research in New York.
Syria borders Iraq and is near Iran, countries that together hold almost a fifth of the output capacity from the Organization of Petroleum Exporting Countries, Bloomberg estimates show.
Prices also slid on speculation that the Federal Reserve will trim stimulus measures this month. The economy maintained a “modest to moderate” pace of expansion from early July through late August, the Fed said today in its Beige Book business survey.
Fed officials have been scrutinizing economic data to determine the timing and pace of any reduction in its $85 billion monthly bond-buying program. The central bank, which has said it may pare stimulus if the U.S. economy improves in line with its forecasts, will hold its next policy meeting on Sept. 17-18.
Crude stockpiles in the U.S., the world’s largest oil consumer, fell by 2 million barrels to 360 million in the week ended Aug. 30, according to the median estimate of 12 analysts in a Bloomberg survey before an Energy Information Administration report tomorrow. It would be the eighth decline in 10 weeks.
Libya, holder of Africa’s biggest oil reserves, is not exporting crude and pumping remains limited to 200,000 barrels a day, Ibrahim Al Awami, the oil ministry’s director of inspection and measurement, said Wednesday.
Brent futures for delivery in December 2014 widened their discount to the December 2013 contract as Mexico sold next year’s futures in its hedging program, according to Phil Flynn, senior market analyst at the Price Futures Group in Chicago. The discount was $9.32 Wednesday, narrower than Tuesday’s $9.75 and a record $10.29 on Aug. 28.
Implied volatility for at-the-money WTI options expiring in October was 27.5 percent, down from 28.6 percent yesterday, the highest level since December, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 442,566 contracts as of 3:59 p.m. It totaled 588,069 contracts Tuesday, 8.8 percent below the three-month average. Open interest was 1.86 million contracts.
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