Oil falls towards $109 as Syria deal eases supply concerns

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Global oil prices fell towards $109 a barrel on Monday after the United States agreed to call off military action against Syria, easing supply concerns.

Brent crude for delivery in November fell by almost $3 to $108.73, its weakest level since Aug. 12,

Oil pared some of those losses to trade $2.21 down at $109.49 by 1241 GMT after protesters in eastern Libya denied a deal had been struck with the government and said terminals there would remain closed until their demands had been met.

U.S. oil for October delivery was trading down $1.56 cents a barrel at $106.65 at 1242 GMT after hitting a low of $106.48 earlier in the session.

"The most important factor is the lower perception of geopolitical risk. This has brought prices under significant pressure," said Carsten Fritsch, oil analyst at Commerzbank.

Benchmark front-month Brent futures touched a six-month high of $117.34 a barrel in late August amid worries that a possible U.S. military strike against Syria might further disrupt oil supplies in the region, where unrest in Libya has already sent production to a post-war low of 150,000 barrels per day.

But prices began to drop after Russia offered to help put Syria's chemical weapons under international control

The decline in oil prices came despite weakness in the dollar, which typically makes dollar-denominated assets cheaper for holders of other currencies.

The dollar fell to a near four-week low against a basket of major currencies as investors bet that the U.S. Federal Reserve would take longer to end its stimulus programme after Larry Summers, a former treasury secretary, withdrew from the race to succeed Fed Chairman Ben Bernanke.

Harry Tchillinguirian, oil analyst at BNP Paribas, said uncertainty over who would succeed Bernanke and over the direction of U.S. monetary policy would likely boost demand for risky assets such as dollar-denominated oil and put a floor under oil price declines for now.

"On the one hand you have a postponement of a military strike that alleviates geopolitical tensions and effects a downward force on oil. On the other hand, oil is supported as a risky asset class by the withdrawal of Larry Summers who was seen as the hawkish candidate," said Tchillinguirian.

The Federal Open Market Committee is meeting for two days from Tuesday with expectations high that policymakers will decide to reduce the monthly $85-billion bond purchases as they begin to end the era of cheap money that has boosted fund flows into commodities.

Credit Suisse said in a note it expects the Fed to pare down the monthly bond purchases by around $20 billion.

"A series of recent economic data improvements points in this direction and the weaker-than-expected August labour market report is unlikely to keep the Fed from proceeding with slowly winding down its asset purchases," the investment bank said. (Additional reporting by Manolo Serapio Jr in Singapore; editing by William Hardy)



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