September 16, 2013 / 11:18 AM / in 5 years

UPDATE 8-Oil falls as Middle East tensions recede

* Brent, WTI crude fall by over a dollar

* U.S., Russia back plan to destroy Syria chemical weapons

* Coming up: API inventory data Tues at 4:30 p.m.(2030 GMT (Updates prices to settlement, adds paragraph on Brent technicals)

By Anna Louie Sussman

NEW YORK, Sept 16 (Reuters) - Global oil prices fell on Monday after U.S. and Russian officials reached a weekend deal to strip Syria of chemical weapons, easing investor worries.

Also pressuring oil prices, Iran’s new atomic energy chief said his country wants to settle a decade-old nuclear dispute with the West.

“The market is clearly taking out the risk premium it had afforded to the potential of military action” on Syria, said Andy Lebow, vice president at Jefferies Bache in New York. He also cited Iran’s softer tone as a factor pulling Brent down.

U.S. President Barack Obama said he would retain the military option if Damascus fails to follow a U.N. disarmament plan drawn up by Washington and Moscow. On Sunday, Syrian warplanes and artillery bombarded rebel suburbs of the capital.

Brent crude has fallen by $7 from the six-month high of $117.34 a barrel reached in late August on worries about a possible U.S. military strike against Syria and on unrest in Libya that has reduced production there to a post-war low of 150,000 barrels per day.

Brent crude for delivery in November fell by $1.63 to settle at $110.07 a barrel, paring losses after losing nearly $3 to hit $108.73, its weakest level since Aug. 12.

Brent closed below its 50-day moving average of $110.31, the first time it had done so since early July.

U.S. oil for October delivery fell by $1.62 a barrel to close at $106.59 after hitting a low of $106.10 earlier in the session.

Brent’s premium over U.S. crude narrowed by more than $1 from Friday’s close to settle at $3.48. During the session the spread between the two benchmarks hit a low of $2.94, the smallest premium since Aug. 20.

Both benchmarks sold off further in post-settlement trading.

RBOB gasoline futures fell by around 5 cents to $2.719 per gallon as a seasonal change in specifications for delivery in the New York harbor from summer grade to winter grade gasoline left the market plentifully supplied with both grades.

“It’s a combination of plentiful supplies and the fact that you can’t put the excess summer grade into storage,” said Stephen Schork, editor of The Schork Report in Villanova, Pennsylvania.

On Monday, a spokesman for Libyan protesters denied Libyan media reports that striking workers in the east of the country had reached a deal to reopen export terminals.

The decline in oil prices came despite a weak dollar, which usually bolsters dollar-denominated oil prices. The dollar hovered near a near four-week low after former U.S. Treasury Secretary Lawrence Summers withdrew his name as a candidate to lead the U.S. Federal Reserve.

Markets perceive Summers as relatively hawkish, and his withdrawal suggests there could be a more gradual approach to tightening monetary policy.

“The Larry Summers story shows you how dependent we are on our monetary policy, and how hard it’s going to be to get off that,” said Phil Flynn, an analyst at the Price Futures Group in Chicago, Illinois.

U.S. industrial production rose in August as a bounce back in motor vehicle assembly lifted manufacturing output, a hopeful sign for the economy after growth got off to a slow start in the third quarter.

“The industrial production number brought us back up on the demand side a little bit,” Flynn said.

The Federal Open Market Committee is meeting for two days beginning on Tuesday with expectations high that policymakers will decide to reduce the Fed’s monthly $85-billion bond purchases as they begin to end the era of cheap money that has boosted fund flows into commodities. (Additional reporting by Lin Noueihed in Lonodn, Manolo Serapio Jr in Singapore; Editing by David Gregorio; and Peter Galloway)

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