SINGAPORE: Brent crude oil futures edged lower on Tuesday, adding to steep losses in the prior session, after a diplomatic resolution to the Syrian crisis calmed worries that crude supply from the Middle East would be at risk.
The more modest drop suggests tensions have not completely faded after the United States, Britain and France warned Syria's President Bashar al-Assad that there would be consequences if he failed to hand over the country'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 47 cents at $109.60 a barrel by 0241 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 the US agreed to call off military action against Syria in a deal with Russia to remove Damascus's chemical weapons.
US crude for October delivery fell 79 cents to $105.80 a barrel, after hitting a session low of $105.72, its weakest since Sept. 3.
Brent has lost more than 6 percent since hitting a six-month top of $117.34 in late August when a US military strike against Syria appeared imminent.
West Texas Intermediate oil has dropped almost 6 percent since rising above $112 on Aug. 28, its highest in more than two years.
Brent could ease further towards $105 and WTI may fall towards $100, said Le Brun, who sees the downward pressure for oil from the Federal Reserve's policy meeting, as investors brace for the a wind-back in US economic 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 US dollar which could dent appeal of dollar-based commodities 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.
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