Crude oil hits 7-week low as supply concerns continue to fade away

Investing.com - Crude oil futures tumbled to a seven-week low on Tuesday, as fears over a disruption to supplies from the Middle East continued to fade away.

On the New York Mercantile Exchange, light sweet crude futures for delivery in November traded at USD102.61 a barrel during U.S. morning trade, down 0.95%.

New York-traded oil futures fell by as much as 1.1% earlier in the session to hit a daily low of USD102.55 a barrel, the weakest level since August 8. The November contract settled down 1.1% at USD103.59 a barrel on Monday.

Oil futures were likely to find near-term support at USD102.28 a barrel, the low from August 8 and resistance at USD106.11 a barrel, the high from September 20.

Oil prices sustained their downward trend in recent sessions as fears over a disruption to supplies from the Middle East continued to fade away.

Futures 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 Syria for its alleged use of chemical weapons against civilians.

But prices have since lost nearly 8% after the U.S. and Russia reached a diplomatic solution on how to handle Syria’s chemical weapons on September 14.

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.

Reports that Libyan oil production is on the rise after protesters reopened access to facilities also added to the selling pressure, as did talk that oil output in Nigeria is recovering.

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

Ongoing uncertainty over the future of the Federal Reserve's stimulus program also weighed.

Oil prices sold off on Monday after New York Federal Reserve President William Dudley said that the pace of the U.S. economic recovery remains insufficient for the central bank to start scaling back its stimulus program.

Dudley said that adjustments to the Fed’s USD85 billion-a-month asset purchase program "need to be anchored in an assessment of how the economy is actually performing”.

The Fed said last week that it wanted to see more evidence of a sustained economic recovery before it adjusted the scale of its bond buying program. The decision surprised markets, which had been expecting a modest reduction to the bank’s stimulus program.

The Federal Reserve’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.

Oil traders now looked ahead to the release of fresh weekly information on U.S. stockpiles of crude and refined products to gauge the strength of oil demand in the world’s largest oil consumer.

The American Petroleum Institute will release its inventories report later in the day, while Wednesday’s government report could show crude stockpiles fell by 1.1 million barrels.

Elsewhere, on the ICE Futures Exchange, Brent oil futures for November delivery shed 0.35% to trade at USD107.78 a barrel, with the spread between the Brent and crude contracts standing at USD5.17 a barrel.