UPDATE 7-Oil weakens as Syrian strike seen limited

>

* U.S. crude oil stocks likely fell last week -poll

* Coming up: API weekly oil stocks 4:30 p.m. EDT Wednesday

* Coming up: EIA oil data at 11 a.m. EDT on Thursday (Adds details; updates prices; changes byline; changes dateline from LONDON)

By Jeanine Prezioso

NEW YORK, Sept 4 (Reuters) - Brent crude oil weakened on Wednesday as it appeared that a military strike against Syria would remain limited, quelling fears of supply disruptions in the Middle East.

U.S. President Barack Obama is asking U.S.

"EDT on Thursday (Adds details; updates prices; changes byline; changes dateline from LONDON)By Jeanine PreziosoNEW YORK, Sept 4 (Reuters) - Brent crude oil weakened on Wednesday as it appeared that a military strike against Syria would remain limited, quelling fears of supply disruptions in the Middle East.U.S"lawmakers to approve his plan for a military strike against Syria for an alleged chemical weapons attack against its citizens. U.S. Senate Foreign Relations Committee members said they expected a panel vote later on Wednesday on a draft resolution for the use of military force in Syria.

While Syria is not a big oil producer, investors have been worried that a strike there by Western forces may spread unrest in the Middle East and disrupt supply from a region that pumps a third of the world's crude.

This has driven U.S. oil prices to their highest this year and Brent oil to a six-month peak as traders have priced in a supply risk factor.

"You're mainly seeing a pullback on the perception that we may not strike Syria and that if we do, Congress will rein in Obama's plans," said Michael Lynch, an oil analyst and president of consultancy Strategic Energy & Economic Research Inc in Winchester, Massachusetts. "The chance of contagion appears much less reduced compared to last week."

Front-month Brent crude oil futures were down 74 cents at $114.94 a barrel at 12:43 p.m.

EDT (1643 GMT), after trading as high as $116.09 and as low as $114.40.

U.S. crude oil for October delivery fell $1.28 to $107.26 a barrel, after trading in a range of $106.98 to $108.61.

Middle East tension may also widen Brent's premium to U.S. crude CL-LCO1=R, which was last trading at $7.72 per barrel.

There are concerns that any action against Syria would have an ill effect on U.S. foreign relations with Iran and thwart diplomacy related to its nuclear program.

Other world leaders said a lack of action against the alleged use of chemical weapons may send the wrong message to Iran - that it would not face consequences for the proliferation of weapons of mass destruction.

Investment bank Goldman Sachs says a limited Syrian strike would push up crude prices, but argues that Brent is unlikely to exceed $125 per barrel.

Markets are already coping with a supply loss from OPEC producer Libya as strikes at ports and pipelines have shrunk exports to around 80,000 barrels per day, less than a tenth of capacity.

Outages from the Middle East and Africa have risen above 3 million bpd, some 3.5 percent of global demand.

Sudan's decision to lift a threat to block oil exports from South Sudan provided some relief, although Juba's output at 200,000 bpd remained lower than before the conflict shut its entire production.

The improving global economic outlook was having a secondary effect on prices, Lynch said. "It's the reason we're not down $2 a barrel."

Euro zone businesses had their best month in more than two years in August, and growth in the services sector in China, the world's second-largest oil consumer, hit a five-month high.

A decline in crude oil purchases as seasonal refinery maintenance kicks off may place some downward pressure on prices in coming weeks, Lynch said.

Private forecaster API will release its weekly oil data at 4:30 p.m.

""The chance of contagion appears much less reduced compared to last week."Front-month Brent crude oil futures were down 74 cents at $114.94 a barrel at 12:43 p.m"EDT (2030 GMT) on Wednesday, one day later due to due to the U.S. Labor Day holiday on Monday. The U.S. Energy Information Administration will report oil data at 11 a.m. EDT (1500 GMT) on Thursday, also one day later.

U.S.

commercial crude oil and gasoline inventories likely fell last week, a preliminary Reuters poll showed. (Additional reporting by Peg Mackey in London and Florence Tan in Singapore; Editing by Keiron Henderson, James Jukwey and Lisa Von Ahn)

Energy

• Tweet this
• Link this
• Share this
• Digg this
• Email
• Reprints