UPDATE 8-Brent oil hits 5-month high on Syria, settles lower on US data

Mon Aug 26, 2013 5:34pm EDT

Related Topics

* White House says evidence of poison gas "undeniable"

* U.S. durable goods orders drop most in nearly a year

* North Sea, Libyan outages supporting market (New througout, updates prices and market activity to post-settlement)

By Jeanine Prezioso and David Sheppard

NEW YORK, Aug 26 (Reuters) - Brent crude oil prices hit a five-month high above $111 a barrel on Monday as the United States signalled it was edging toward a possible military response to last week's suspected chemical attack in Syria, but prices settled slighty lower in choppy trade as weak U.S. economic data weighed.

In the most forceful U.S. reaction yet since Wednesday's suspected chemical attack, Secretary of State John Kerry accused the Syrian government of an attempted cover up and said President Barack Obama "believes there must be accountability for those who would use the world's most heinous weapons against the world's most vulnerable people."

Oil analysts at Barclays said the growing likelihood of some form of U.S.-led military response raised tensions in the Middle East "compounding concerns about the stability of the world's key oil producing region and will likely exert upward pressure on prices."

Brent crude oil futures for October delivery traded up to $111.68 a barrel, the highest since April 2, before slipping to end the day 31 cents lower at $110.73 a barrel.

After the settlement, prices edged up again to around $111.10 a barrel after the White House said it was "undeniable" that chemical weapons were used in Syria.

U.S. crude for October delivery ended 50 cents lower at $105.92, after trading as high as $107.37, the most in four sessions.

Trading in both benchmark contracts was less than half the 30-day average, with a public holiday in London cutting volume.

Kerry spoke after a team of United Nations chemical weapons inspectors visited the site of the alleged poison gas attack in Syria, and as military chiefs from the United States and its European and Middle Eastern allies met in Jordan.

Unrest in the Middle East, which pumps a third of the world's oil, has supported Brent crude. Hedge funds and other large speculators raised their bets on higher Brent prices to a record level in the week to Aug. 20, exchange data shows, while positioning for gains in U.S. crude is also at elevated levels.

"The fear that the situation in the Middle East could spiral out of control is keeping sellers from coming out of woodwork," said Gene McGillian, an analyst with Tradition Energy in Stamford, Connecticut.

US DATA CAPS GAINS

Tighter supplies due to output disruptions in the North Sea and Libya and positive economic data from the euro zone and China last week also supported prices. Since late June, Brent is up by about $12 a barrel.

Trading has been choppy in the past two weeks, as investors weigh how each piece of economic data will influence the U.S. Federal Reserve decision of whether and when to scale back its stimulus program.

On Monday, a sharp drop in U.S. durable goods orders added to signs that economic growth in the world's largest oil consumer may be slower than previously expected in the third quarter, after government figures late last week showed new home sales dropped to their lowest in nine months.

"We're seeing the poor news on home sales Friday and durable goods today," said Bill Baruch, senior market strategist at iitrader.com in Chicago. "It's kept the market in check after the recovery in the last week."

At the same time, weaker data may convince the Fed to hold off on trimming its economic stimulus program, which has largely been seen as supporting commodity prices.

U.S. crude prices rose to a two-week high of $108.17 on Aug. 16, but shed one percent last week.

Brent's premium to the U.S. benchmark West Texas Intermediate CL-LCO1=R briefly narrowed to $4.02 per barrel, its smallest since Aug. 20. It settled at $4.81.

U.S. gasoline futures were off the three-week high they hit on Friday. They settled at $2.9517 a gallon, close to 2 percent lower.

The gasoline-making unit at Monroe Energy's 185,000 barrel-per-day Trainer refinery was restarting on Monday, industry intelligence group Genscape said. That should add to supplies on the heavily populated East Coast during the summer driving season.

U.S. commercial crude and gasoline stockpiles are forecast to have fallen last week due to stronger summer demand, a preliminary Reuters poll of five analysts showed on Monday. (Additional reporting by Julia Payne in London and Florence Tan in Singapore. Editing by Andre Grenon and David Gregorio)

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