BUSINESS

Oil drops below US$105 as Syria tensions ease, another US budget battle looms

09/20/2013 05:10 EDT | Updated 11/20/2013 05:12 EST
NEW YORK, N.Y. - Oil fell more than one per cent Friday as fears of a disruption to Middle East supplies eased while concerns about a shutdown of the U.S. government grew stronger.

Benchmark West Texas Intermediate crude for October delivery dropped $1.72, or 1.4 per cent, to close at $104.67 a barrel on the New York Mercantile Exchange. For the week, oil was down US$3.54 a barrel, or 3.3 per cent, despite a 2.5 per cent increase on Wednesday when the U.S. Federal Reserve announced it would keep its stimulus policy in place.

Progress in reaching a deal to eliminate Syria's chemical weapons helped put downward pressure on oil prices. On Thursday, U.S. Secretary of State John Kerry called on the UN Security Council to back the U.S.-Russia deal, which has reduced the threat of a U.S. military strike.

Fears of instability in the oil-rich Middle East were further allayed after reports signalled a return of more Libyan crude oil to the market. Production and exports have been sharply interrupted in the chaos following the overthrow of longtime dictator Moammar Gadhafi in 2011.

Finally, another budget battle loomed in Washington. Lawmakers need to agree to raise the debt ceiling by Oct. 1 to avoid a government shutdown, and a potential default on payments, including debt, later in the month.

Concerns about a stalemate between Republicans and the White House also contributed to a down day on Wall Street, where the Dow Jones industrial average fell more than on per cent.

"Until this situation is better defined, most institutions will be reluctant to press too hard on the buy side of anything," wrote Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, in a note to clients.

Brent crude, the benchmark for international crudes used by many U.S. refineries, gained 46 cents to US$109.22 a barrel on the ICE Futures exchange in London.

In other energy futures trading on Nymex, wholesale gasoline fell one cent to US$2.68 a U.S. gallon (3.79 litres), heating oil was flat at $3 a gallon and natural gas fell three cents to US$3.69 per 1,000 cubic feet.

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