Crude oil futures fall sharply to hit 3-week low on Syria accord

Investing.com - Crude oil futures were down sharply to hit a three-week low on Monday, as the threat of U.S. military intervention in Syria appeared to diminish, easing concerns over a disruption to supplies from the Middle East.

Oil traders shrugged off news that former U.S. Treasury secretary Larry Summers withdrew himself from consideration to be the next Federal Reserve chairman, which sent the U.S. dollar sharply lower against its major rivals.

On the New York Mercantile Exchange, light sweet crude futures for delivery in November traded at USD105.92 a barrel during U.S. morning trade, down 1.5%.

New York-traded oil futures fell by as much as 1.6% earlier in the day to hit a session low of USD105.80 a barrel, the weakest level since September 1. The November contract settled 0.2% lower at USD107.54 a barrel on Friday.

Oil futures were likely to find support at USD105.06 a barrel, the low from September 1 and resistance at USD108.64 a barrel, Friday’s high.

Oil prices tumbled as market players remained focused on developments regarding a diplomatic solution on how to handle Syria’s chemical weapons.

On Saturday, U.S. Secretary of State John Kerry and Russian Foreign Minister Sergei Lavrov agreed on a framework for Syria to destroy its chemical weapons stockpile by the middle of 2014.

Under the agreement, Syrian President Bashar al-Assad will be required to declare his country’s stockpiles of chemical weapons by September 20.

The agreement calls on Syria’s government to allow chemical-weapons inspectors access to sites where the weapons are being stored. The initial on-site inspections would be completed by November.

The country’s chemical weapons infrastructure would be dismantled by the first half of 2014, according to the agreement.

Oil prices surged to a 27-month high of USD112.22 a barrel on August 28 amid indications the U.S. was close to taking military action against Bashar al-Assad’s government.

While Syria is not a major oil producer, investors fear that the two-year-old civil war could spill over to affect oil supplies in nearby countries.

Countries in the Middle East were responsible for nearly 35% of global oil production in 2012.

Meanwhile, investors shifted their focus to the Federal Reserve’s upcoming two-day policy meeting, which concludes on Wednesday, amid ongoing speculation over the timing of the central bank’s widely expected reduction in monthly bond purchases.

Data released earlier in the day showed that the Empire State manufacturing index fell to a four-month low of 6.29 in September from a reading of 8.24 in August. Analysts had expected the index to rise to 9.2.

The soft data added to doubts over whether the Fed will decide to start unwinding its USD85 billion-a-month bond buying program this month.

The Fed’s stimulus program is viewed by many investors as a key driver in boosting the price of commodities as it tends to depress the value of the dollar.

Elsewhere, on the ICE Futures Exchange, Brent oil futures for October delivery plunged 2.1% to trade at USD109.36 a barrel, with the spread between the Brent and crude contracts standing at USD3.44 a barrel.

London-traded Brent prices fell by as much as 2.6% earlier to hit a daily low of USD108.80 a barrel, the weakest level since August 20.