Why isn't war in the Middle East pushing oil higher?
The International Energy Agency said last week that the recent pullback in prices from the highs of late September reflected an erosion in demand, especially in the US, where data suggest seasonally weak gasoline consumption.
After a muted response to the outbreak of the Hamas-Israel war, oil picked up fast on Friday, gaining $5 a barrel to touch $91 in London.
A flurry in the options market reflected a rush by traders to buy protection against worst-case scenarios that would take crude past $100 a barrel. And gold's rally — jumping the most since March — only frayed nerves further.
Come Monday morning, though, and the situation is relatively calm. The widely anticipated Israeli assault on Gaza hasn't started, and the US is in diplomatic overdrive to avoid wider regional chaos. President Joe Biden may make a trip to Israel this week.
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"Traders are really struggling to figure out how to trade this," said Amrita Sen, co-founder and director of research at consultant Energy Aspects. "There's no direct supply losses," yet the geographical proximity to other regional powers such as Iran is "probably just too close for comfort."
Israel is likely to start a ground campaign at some point, and the potential for overspill into the wider Middle East remains. The question is: Given the tight grip OPEC+ is keeping on the market, why isn't oil higher?
The International Energy Agency said last week that the recent pullback in prices from the highs of late September reflected an erosion in demand, especially in the US, where data suggest seasonally weak gasoline consumption.
Many barrel-counters also foresee some slackness in the market early next year, driven by slower demand growth and fresh supplies from South America.
And don't forget that Saudi Arabia and its OPEC+ allies, having slashed crude output this year to prop up prices, are left with a healthy reserve of spare production capacity to weather any shocks.
For now, the market appears stuck between the risks of a wider Middle East crisis that sucks in Iran and the uncertain outlook for the global economy.
Until traders get more clarity on both of those things, it may prove hard for prices to find a clear direction.
Will Kennedy is the senior executive editor for energy and commodities at Bloomberg
