Oil Falls as Mideast Supply Worries Fade


Brent crude slipped below $116 a barrel on Thursday, taking a breather after clocking its strongest 2-day gain since January 2012 over fears of oil-supply disruptions in the Middle East as western nations prepared to get involved in the Syrian conflict.

The West is gearing up for a military strike against Syria in response to last week's chemical weapons attack, although U.S. President Barack Obama faced new obstacles with British allies and U.S. lawmakers that could delay any imminent action.

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Brent crude for October delivery was at $115.87, down 74 cents by 0313 GMT, after rising more than 5 percent in the last two sessions.

October U.S. crude fell 58 cents to $109.52 a barrel following a near 4 percent gain over the past two days.

"The market is overdone to the upside," Tony Nunan, a risk manager at Mitsubishi Corp, said, adding that more sell-offs could occur if the strike is going to be brief.

Obama said on Wednesday that a "tailored, limited" strike, not a protracted engagement like the unpopular Iraq war, could be enough to send a strong message that the use of chemical weapons cannot be tolerated.

Oil has jumped this week to multi-month highs on fears that the potential strike on Syria could spread unrest to major oil producers in the Middle East and disrupt supply.

"There are so many other parties involved when it comes to Syria," Nunan said. "Israel, Iran are close by and other countries could get dragged into it."

Oil is likely to stay above $110 with support from the Middle East uncertainty and as the Libyan oil supply situation has worsened, he said.

Libya's crude output has been cut to 250,000 barrels per day (bpd) from pre-war levels of 1.6 million bpd as workers' strikes crippled exports, Prime Minister Ali Zeidan said on Wednesday.

Brent's premium to U.S. crude <CL-LCO1=R> has risen to more than $6 a barrel, the widest since June, on expectations of rising supply at the U.S. contract's delivery point in Cushing, Oklahoma.

U.S. crude stockpiles rose almost 3 million barrels to 362 million barrels last week, data from the U.S. Energy Information Administration showed on Wednesday, far exceeding a forecast of a 0.2 million barrel build in a Reuters poll.

Crude stocks at Cushing, Oklahoma, have dropped 26 percent since the end of June to 36.59 million barrels, falling 837,000 barrels last week. (Editing by Muralikumar Anantharaman)