Brent below $108 on Libya output rise, easing Syria fears

Brent crude oil prices slipped below $108 a barrel today as Libya resumed output and as the start of diplomatic talks to eliminate Syria's chemical weapons eased worries that crude supply from the Middle East would be at risk.

But investors remained cautious as they awaited the outcome of a US Federal Reserve policy meeting, where the central bank is expected to decide to begin the reduction of its massive, commodities-friendly stimulus programme.

Brent crude oil futures for November fell 21 cents to $107.98 a barrel by 0500 GMT, after slipping to its lowest in more than a month in the previous session.

US crude oil futures for October gained 21 cents to $105.63 a barrel, after losing $1.17 in the previous session.

"One of the foremost factors (for Brent prices) has been news that Libya is having some success restoring production capacity - which follows the momentum on the likelihood of a diplomatic solution to Syria, " said Ric Spooner, chief market analyst at CMC Markets.

“US prices trending higher is probably just a short-term fluctuation, and also Libya being able to increase production has a more direct impact on Brent than on WTI.”

A combination of strikes, militias and political activists have blocked the majority of Libya’s oilfields and ports since end-July.

Libyan oil supplies are expected to rise to 400,000 to 450,000 barrels per day (bpd) as one of its biggest western oilfields, El Sharara, ramps up after workers resumed pumping on Monday. Oil output in Libya, though, is still far below its pre-war level of 1.6 million bpd.

The geopolitical risk premium built into Brent prices was also receding as fears of a US-led strike on Syria abated. Syria is not a major oil producer, but investors had worried any violence there could spread and disrupt Middle East oil supplies.

Diplomats from five key nations kicked off talks yesterday on a Western-drafted UN Security Council resolution to eliminate Syria’s chemical weapons.

“The diplomatic resolution to gather and destroy Syria’s arsenal of chemical weapons helped to relieve worries of a US military response which had plagued the market recently,” wrote Phillip Futures analysts in a note today.

Investors were also selling oil as a two-day Fed meeting began yesterday. The central bank is expected to cut its monthly bond purchases by at least $10 billion.

The US dollar, in which most commodities are priced, was near a four-week trough against a basket of major currencies.

While the likely outcome of the Fed meeting might already be priced into oil, a bigger tapering could prompt more selling, said Mr Spooner.

Supporting US oil prices, US crude inventories fell by 252,000 barrels in the week to September 13th, compared with analysts’ expectations for a decrease of 1.4 million barrels in a Reuters poll, data from industry group the American Petroleum Institute showed.

Crude stocks at the Cushing, Oklahoma, delivery hub fell by 889,000 barrels, the API said.

Oil inventory data from the US Energy Information Administration is due later today. (Reuters)