Brent oil futures edged lower on Tuesday, adding to the prior session's steep losses, as easing worries over Syria calmed fears that crude supply from the Middle East would be at risk.
But the modest drop suggests tensions have not completely faded after the United States, Britain and France warned President Bashar al-Assad there would be consequences if he failed to hand over Syria's chemical weapons.
“The risk premium is coming out of oil markets because the Syrian tension seems to be dying down,” Ben Le Brun, market analyst at OptionsXpress in Sydney.
“But they're still simmering beneath the surface so there would still have to be some risk premium built into the price.”
Brent crude for delivery in November was down 23 cents at $109.84 a barrel by 0633 GMT, after touching a near one-month low of $108.73 in the previous session.
The oil benchmark slid 2.4 percent on Monday, its steepest single-day decline since June 20, after U.S. and Russian officials reached a weekend deal to strip Syria of chemical weapons, easing worries about a U.S.-led strike against Syria.
U.S. crude for October delivery fell 61 cents to $105.98 a barrel, after hitting a session low of $105.59, its weakest since Sept. 3.
Brent has lost 6.4 percent since hitting a six-month top of $117.34 in late August when a U.S. military strike against Syria appeared imminent.
The U.S. benchmark has dropped 5.6 percent since rising above $112 on Aug. 28, its highest in more than two years.
Brent could ease towards $105 and U.S. oil may fall towards $100, said Le Brun, who sees further downward pressure for oil from the outcome of a U.S. Federal Reserve policy meeting at which it is widely expected to begin withdrawing stimulus.
The Fed begins its two-day meeting later on Tuesday and is expected to cut its monthly $85-billion bond purchases by at least $10 billion as it begins to close the era of cheap money that has boosted the flow of funds into commodities.
Reducing the stimulus is likely to fuel a rally in the U.S. dollar which could dent appeal of commodities priced in the greenback, such as oil.
“If our assessment is correct, the dollar could strengthen in the wake of the tapering announcement, followed by more selling in commodities, although the impact of this down move will likely be short-lived since much of the decline may have already taken place,” INTL FCStone analyst Ed Meir said in a note.SHOW MORE