Benchmark front-month Brent futures touched a six-month high of $117.34 a barrel in late August amid worries that a possible US military strike against Syria would disrupt Middle East oil supplies already hit by outages in Libya and Iraq.
But prices began to drop after Russia offered to help put Syria’s chemical weapons under international control.
On Saturday, US Secretary of State John Kerry and Russian Foreign Minister Sergei Lavrov agreed to back a nine-month UN programme to destroy Syrian President Bashar al-Assad’s chemical arsenal.
Brent crude for delivery in November dropped by $2.16 to trade around $109.54 at 1030 GMT, after hitting $108.73, its weakest level since 12 August.
The October contract expired on Friday, settling at $112.78.
US oil for October delivery was trading down $1.36 a barrel at $106.85 after hitting a low of $106.48 earlier in the session.
“On the one hand you have a postponement of a military strike that alleviates geopolitical tensions and effects a downward force on oil. On the other hand, oil is supported as a risky asset class by the withdrawal of Larry Summers who was seen as the hawkish candidate,” said Harry Tchillinguirian, oil analyst at BNP Paribas.
The decline in oil prices came despite weakness in the dollar, which typically makes dollar-denominated assets cheaper for holders of other currencies.
The dollar fell to a near four-week low against a basket of major currencies as investors bet that the US Federal Reserve would take longer to end its stimulus programme after Summers, a former treasury secretary, withdrew from consideration to succeed Fed Chairman Ben Bernanke.
Tchillinguirian said uncertainty over who would succeed Bernanke and the direction of US monetary policy would likely boost demand for risky assets such as dollar-denominated oil and put a floor under oil price declines for now.
The Federal Open Market Committee is meeting for two days from Tuesday with expectations high that policymakers will decide to reduce the monthly $85-billion bond purchases as they begin to end the era of cheap money that has boosted fund flows into commodities.
Credit Suisse said in a note it expects the Fed to pare down the monthly bond purchases by around $20 billion.
“A series of recent economic data improvements points in this direction and the weaker-than-expected August labour market report is unlikely to keep the Fed from proceeding with slowly winding down its asset purchases,” the investment bank said.
Information from Upstream was used in this report.