Oil fluctuates on easing Syria tension, global economic recovery

West Texas Intermediate traded lower on the day and Brent crude fluctuated between gains and losses as the market was balancing between easing concern over an U.S.-led attack against the Syrian regime and increased demand prospects amid signs that the global economy is turning a corner following yesterdays upbeat manufacturing data from China and Europe.

On the New York Mercantile Exchange, WTI crude for October delivery traded at $107.05 per barrel at 6:26 GMT, down 0.56% on the day. Futures held in range between days high and low of $107.13 and $106.56 per barrel respectively. The American benchmark has fallen 0.6% so far this week after adding 1.2% in the preceding five-day period.

Meanwhile on the ICE, Brent oil for delivery in the same month retreated back to negative territory and traded at $114.24 per barrel, down 0.04% on the day. The European benchmark swung between gains and losses on Tuesday. Futures held in a tight range between days high and low of $114.42 and $114.10 per barrel respectively. The contract is marking a 0.2% weekly advance after gaining 5.3% in the preceding three weeks.

Oil prices continued to fluctuate without a clear direction as market players are awaiting a resolution by the U.N. Security Council and Congresss vote whether to back President Barack Obamas decision to initiate a punitive attack against Bashar al-Assads regime for allegedly using chemical weaponry against its own civilians. However, lawmakers from President Obamas own Democratic Party were skeptic about the plan, expressing concern that the United States would be dragged into a yet another war in the Middle East. Meanwhile, Republican Senators John McCain of Arizona and South Carolina’s Lindsey Graham, two of the biggest critics of Obamas stance on Syria, urged their colleagues after being persuaded at a White House meeting to recognize the risks that the use of chemical weaponry implies and support Obamas intentions.

Meanwhile, one of the U.S. main allies, France, released a nine-page intelligence document, which suggested that Assad was behind the chemical attack. However, after the U.K. House of Commons turned down Prime Minister David Camerons proposal to support the U.S. in an intervention in the Syrian civil war last week, the U.S. lost its biggest ally, leaving it with a lack of broad-based support and limiting a possible strike against the Middle East country to a short attack which might not drag its neighbors in the conflict.

Ken Hasegawa, a commodity sales manager at Newedge Japan, said for Reuters: “Oil may not move out of its current range till the employment numbers are out unless there is a sudden escalation in tensions in Syria. The market is also waiting for details on the Feds plan to cut back its stimulus.”

Global economy

Oil prices however drew support as upbeat China and Europe data in the last couple of days showed signs of consistent economic stabilization, thus boosting demand prospects. Both Sweden and Norway’s manufacturing PMI rose more than projected to 52.2 and 53.0 respectively. Spain’s manufacturing sector marked an expansion for the first time in two years and surged to 51.1 in August from 49.8 in July, outperforming analysts’s projections for a reading of 50.1. France’s manufacturing sector marked an expected contraction as the country’s PMI remained flat at 49.7, meeting projections. Germany and Switzerland’s indicators remained in the expansion zone but posted a retreat from the preceding month, falling to 51.8 and 54.6 in August from 52.0 and 57.4 in July respectively.

However, Great Britain’s Manufacturing CIPS rallied to 57.2, the highest since 2 1/2 years, surpassing expectations for a surge to 55.0. This was the biggest advance in nineteen years. July’s reading was revised upward to 54.8 from an initial reading of 54.6.

The general Euro zone’s Final Manufacturing PMI surpassed analysts’ expectations for remaining unchanged at 51.3 and rose to 51.4, indicating the the single currency bloc’s economic activity is consistently improving.

On Sunday, the Chinese National Bureau of Statistics reported that the country’s manufacturing Purchasing Managers’ Index surpassed forecasts for a jump to 50.6 according to a Reuters poll and rose to 51.0 in August, the highest since last April, from 50.3 in July.

Earlier on Monday, according to a separate private survey by HSBC and Markit Economics, the HSBC Purchasing Managers’ Index surged to 50.1 in August, marking a major improvement from July’s 11-month low of 47.7 in July and ending a three-month declining cycle. Chinese manufacturers signaled a slight expansion in growth that was based on improving market conditions.

Also supportive for oil, Libyas output remained limited and the country was forced to import diesel and fuel oil to eliminate power cuts as most gas fields which supplied power plants remained shut amid the ongoing protests.

Sliman Qajam, a member of the parliamentary energy committee, said in a phone interview for Bloomberg that the African country’s production rate fell by 50 000 barrels per day on Sunday to 150 000 bpd, down from a 1.6 million bpd level prior to the civil war in 2011.

Market players will be keeping a close watch on this week’s key U.S. data to gauge the American economy’s strength and oil demand outlook. On Tuesday, the ISM Manufacturing index is expected to have fallen in August, while the Markit U.S. Manufacturing PMI should have remained flat. On Wednesday, the U.S. trade deficit is projected to have widened to $38.6 billion in July from $32.224 billion in June. Thursday’s ADP Employment Change will provide preliminary information for the U.S. labor market. Also on Thursday, Q2 Non-Farm Productivity and Unit Labor Costs should have increased, while the ISM Non-Manufacturing Composite and Factory Orders are expected to have declined. On Friday, the U.S. Non-Farm Payrolls should have surged in August, while the Unemployment Rate likely remained unchanged at 7.4%. Average Hourly Earnings and Average Weekly Hours are anticipated to have increased as well.