Brent crude oil futures dropped to a one-week low below $113 a barrel on Tuesday as supply fears abated after Russia offered to help put Syria's chemical weapons under international control, calming fears of an imminent strike against the country.
Brent climbed to six-month peaks above $117 late last month on worries that a possible U.S.-led military strike against Syria may disrupt oil supplies from the Middle East.
“We're seeing a bit of the premium being erased from oil prices,” said Ben Le Brun, market analyst at OptionsXpress in Sydney.
“It's still possible the U.S. could put a military attack on Syria but the chances of that don't appear to be as strong as they were a week ago.”
Brent oil for October delivery was down 82 cents at $112.90 per barrel by 0548 GMT, after touching a session low of$112.61, its weakest since Sept. 2.
The crude benchmark fell 2.1 percent on Monday, its steepest single-day decline since June 20.
U.S. crude, also for delivery next month, dropped as low as $108.20 a barrel, before cutting its losses to $108.55, down 97 cents. West Texas Intermediate oil hit a more than two-year high of $112.24 in late August.
U.S. President Barack Obama said he saw a possible breakthrough in the crisis with Syria after Russia proposed that its ally Damascus hand over its chemical weapons for destruction, which could avert planned U.S. military strikes.
But U.S. officials and experts warned that any deal with Syria to hand over its chemical weapons in the middle of a chaotic civil war would be difficult for inspectors to enforce and that destroying them would likely take years.
Still, a non-violent way to resolve the crisis would be the logical option, analysts say, with oil prices likely spiking sharply if the conflict spreads to oil-producing nations in the Middle East such as Iran and Iraq.
“If we remove the Syrian tensions, we'd probably see a Brent price under $110 a barrel, maybe even lower,” said Le Brun.
Obama is slated to address the American people on Tuesday night and is due to speak to lawmakers during the day.
The drop in oil prices came despite more data suggesting China's economy is on a better footing, helping brighten the outlook for demand from the world's No. 2 oil consumer.
China's industrial output rose a forecast-beating 10.4 percent in August from a year ago, while retail sales increased 13.4 percent, government data showed.
Those numbers added to evidence that the Chinese economy may avoid a sharp slowdown after data over the past two days showed exports rose more than predicted in August and inflation remained tame.