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Brent gains above $111 after steep fall on easing Syria tension

By Osamu Tsukimori

TOKYO (Reuters) - Brent crude futures gained ground above $111 a barrel on Wednesday, after falling more than 4 percent in the past two days as fears eased of an imminent strike against Syria.

U.S. President Barack Obama vowed on Tuesday to explore an initiative from Russia to neutralize Syria's chemical weapons, but he voiced scepticism about it and still sought support for his threat to use military force should diplomacy fail.

Prices could spike if any move against Syria spills over into violence in the Middle East's main oil producing countries.

Brent crude for October was trading 32 cents higher at $111.57 a barrel by 0440 GMT, after dropping to a two-week low of $110.59 and closing down $2.47 on Tuesday.

U.S. crude for October delivery was down 28 cents at $107.11 a barrel.

The uncertainties over Syria had created a risk premium of about $5 that pushed Brent above $117 last month, but the market has almost returned to around levels from before the crisis, said Ken Hasegawa, a commodity sales manager at Newedge Japan.

Brent hit a six-month high of $117.34 a barrel on August 28.

"All has not been solved and not set, with uncertainties lingering," he said. But "Syria's problem has eased, with market's attention returning to the U.S. financial policies."

Many analysts say the U.S. Federal Reserve will decide next week to begin tapering its monetary stimulus, although last Friday's disappointing U.S. jobs data convinced many economists that any withdrawal will probably be gradual. (MKTS/GLOB)

Any cut in the Fed's stimulus would likely strengthen the dollar, which would hit oil and other commodities priced in the greenback.

U.S. crude stocks fell by 2.9 million barrels last week, compared with analyst expectations for a decrease of 1.5 million barrels, data from the American Petroleum Institute showed on Tuesday after the settlement. (API/S)

Gasoline stocks rose by 195,000 barrels, compared with expectations in a Reuters poll of a 1.3 million barrel decline.

Investors await Wednesday's more closely-watched report from the EIA, to be released at 10:30 a.m. EDT. (EIA/S)


Graphic-U.S. crude analysis:


Graphic-Brent analysis:




President Obama asked leaders in Congress to put off a vote on his request to authorize the use of military force to let diplomacy play out. He said U.S. Navy ships in the eastern Mediterranean and other forces in the region are in place and ready to respond should diplomacy fail.

He set no deadlines for diplomacy to run its course but said the United States will work with Russia and China to put forward a resolution at the U.N. Security Council requiring Assad to give up his supplies of sarin, mustard gas and VX nerve agents.

Iraq's oil minister Abdul Kareem Luaibi said oil prices of about $100 per barrel were fair for consumers, adding that the OPEC member is currently producing 3.25 million bpd of oil, and that it would add 175,000 bpd of output capacity in late September.

Brent oil is expected to hover above support at $110.59 per barrel for at least one trading session or rebound moderately, according to Reuters technical analyst Wang Tao.

(Editing by Tom Hogue)