Oil markets do not have a reputation for being particularly zen.
Volatile and quick-to-react, crude oil futures have a tendency to swing wildly and sometimes irrationally, often going in exactly the opposite direction oil analysts expect—sometimes for years at a stretch.
So when crude was hit with a “perfect storm” this week—from alleged attacks on Saudi ships in the world’s most important oil chokepoint, to the acceleration of the U.S.-China trade war, to name but two highlights—the market surprised observers once again: by more or less shrugging it all off.
Of course, oil markets have not suddenly become relaxed. The result of so much geopolitical saber-rattling and trade uncertainty has instead pulled bets on oil prices in two different directions, analysts say: one where there is sinking demand and more than enough oil in the world, and another where global markets are facing supply shock after supply shock.
The result? It’s all canceling each other out, leaving prices largely stuck in the middle.
Prices for Brent crude front-month futures—the typical benchmark for international oil prices—did strengthen over the course of this week, but not by much. On Friday, Brent was trading around $72.66 per barrel by the end of the day in London, after spending the day nearly flat, with the total weekly gain around $2.25 per barrel or 3.2%.
It’s a trend that’s played out in the last month, the International Energy Agency (IEA) said when it released its monthly oil report mid-week. Despite a range of geopolitical shocks, the Brent price over the course of the previous month had barely budged, it said—prices are currently only about $1/barrel over the same time last month.
“Nothing is pulling prices in either direction,” Neil Atkinson, head of the oil division at the IEA in Paris, told Fortune. “They’re fairly calm.”
To the outside observer, this is bizarre. The tensions in the Persian Gulf, after Saudi Arabia complained of drone attacks on pipelines and sabotage attacks on tankers, raised fears of confrontations in the region, including between the U.S. and Iran. While this week’s attacks have not led to supply disruptions, they upped the stakes around the U.S. sanctions on Iran, which are already removing an estimated 1.5 million barrels of oil a day from global oil markets. The Gulf region produces more than a third of the world’s oil, according to the U.S. Energy Information Administration, so the natural assumption would be that prices would spike.
Nonetheless, “prices have remained calm, and didn’t show the usual historical reaction to such incidents,” said Sara Vakhshouri, president of SVB Energy International in Washington, D.C.
That’s partly because the incident may not be as significant as it appears, say analysts, who note that there have not been any supply disruptions and there’s still fairly little substantive information, although the U.S. has ordered the removal of all its non-emergency staff from neighboring Iraq.
“There’s a lot of posturing taking place,” between the U.S. and Iran, said Sanam Vakil, an expert in the Persian Gulf at Chatham House in London.
But that’s just one of many potential supply shocks. There are a whole basket of other factors: this weekend, OPEC and partners will debate whether to extend their program of voluntarily cutting oil output in order to support prices; Russia is grappling with a logistical disaster after the country exported $2.7 billion worth of contaminated oil; Venezuela is in economic freefall and under sanctions, and in Libya an armed militia is attempting to take control of the capital, interrupting oil exports. We could go on.
It’s enough to make anyone exhausted.
Meanwhile, there are two factors that should be knocking oil prices down. The shale boom from the U.S. continues, with output of crude and condensates expected to rise dramatically over the course of 2019, according to the IEA. And the U.S.-China trade war escalation would typically be expected to push oil prices down, on the fear that it will eventually dampen growth and therefore reduce oil demand. But that hasn’t happened, mainly because of worries about supply.
Instead, jitters over geopolitics in the Middle East and worry over potential supply shocks have offset the impact of the trade war, says Harry Tchilinguirian, global head of commodity markets strategy at BNP Paribas. “There’s a very big supply-driven counterweight,” he said.
Of course, this may simply be the calm before the storm: trade talks could break down further, tensions in the Persian Gulf could actually cut supply, or the U.S. sanctions on Iran could simply start to tighten the overall market.
Or maybe there’s a more psychological explanation. Oil prices might not be facing that much more pressure than usual, says Atkinson from the IEA.
“It might just feel that way,” he said, noting that oil markets have frequently weathered revolution, sanctions, and outright war in the Middle East. “You could argue there wasn’t a period where not much was going on.”