Brent hits 3-week low below $111 after US-Russia deal on Syria

Manolo Serapio Jr
A general view shows an oil rig used in drilling at the Ngamia-1 well in the Lokichar basin, which is part of the East African Rift System, in Turkana County
A general view shows an oil rig used in drilling at the Ngamia-1 well on Block 10BB, in the Lokichar basin, which is part of the East African Rift System, in Turkana County April 5, 2012. REUTERS/Njuwa Maina

By Manolo Serapio Jr

SINGAPORE (Reuters) - Brent oil futures fell by more than a dollar on Monday to a three-week trough below $111 a barrel as supply worries eased after the U.S. agreed to call off military action against Syria in a deal with Russia to remove Damascus's chemical weapons.

The crude benchmark touched a six-month high of $117.34 a barrel late in August amid worries that a possible U.S.-led military strike against Syria may disrupt oil supplies from the Middle East.

But prices dropped last week for the first time in five after Russia offered to help put Syria's chemical weapons under international control.

On Saturday, U.S. Secretary of State John Kerry and Russian Foreign Minister Sergei Lavrov agreed to back a nine-month U.N. programme to destroy Syrian President Bashar al-Assad's chemical arsenal.

"Tensions over Syria appear to be over and that has produced more calmness for the market," said Victor Shum, vice-president of energy consultancy IHS Energy Insight.

Brent crude for delivery in November had dropped $1.06 to $110.64 per barrel by 0536 GMT, after falling to as low as $110.25 earlier, its weakest since August 23. The October contract expired on Friday, settling at $112.78.

U.S. oil for October delivery was down 87 cents at $107.34 a barrel. It hit a session trough of $106.76.

West Texas Intermediate crude could slip below $100 as the Syrian tensions ease further, said Shum. The last time U.S. oil traded below $100 was in early July.

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 the Federal Reserve will take longer to end its stimulus programme after Lawrence Summers pulled out from the race to be the next Fed chief.

Summers, a former top aide to President Barack Obama and Treasury secretary under President Bill Clinton, withdrew from consideration to succeed Federal Reserve Chairman Ben Bernanke, after liberal pressure soured his confirmation prospects.

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 flow into commodities.

A reduction in the U.S. economic stimulus could put more downward pressure on oil prices, said Shum, given the liquidity that will be removed from markets.

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.