The oil spike that wasn't: Prices defy global turmoil

The Middle East and Africa are crucibles of turmoil; Russia still has designs on Ukraine, while Venezuela is still an economic basket case.

So why is U.S. oil at its lowest price since February?

Pump jacks and wells on the Monterey Shale formation in California
David McNew / Stringer | Getty Images News

At long last, market fundamentals appear to be catching up to crude, defying worldwide turmoil that typically would trigger an oil spike. Surging U.S. production and a still uneven global recovery have tamed demand and suppressd a rally that in June saw Brent and West Texas Intermediate skyrocket to their highest levels of 2014. Both benchmarks have done a 180-degree turn since then, with WTI languishing near its weakest since February and Brent hunkered at 13-month lows.

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The reasons behind the sharp turnabout were highlighted this week by the International Energy Agency. The monitor from both the United States—now the second-largest non-OPEC oil producer—and Saudi Arabia helping to boost global supply to 93 million barrels per day last month. That helped offset outages from other oil producers such as Libya, Colombia and Yemen, the IEA said.

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Oil's decline can be attributed to a host of factors, analysts told CNBC, such as massive monetary easing, tame inflationary pressures and the fact that Iraq's oil fields are still pumping despite violence in much of the country.

"I still see issues with Libya and the inability to form a government in Iraq," said Andrew Lipow, president of Lipow Oil Associates. "That leaves open the possibility that some of the oil fields in the south and southeast will come under pressure."

That said, virtually everyone agrees the U.S. oil renaissance is a big part of the story.

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Muted oil prices "are primarily due to the increase in production in the U.S. We do have adequate supplies, and that's helping the world," Lipow noted, saying that the world's largest energy consumer satisfies much of global demand with its own supply.

Radicalized insurgents are still wreaking havoc in Iraq, which could eventually affect production in OPEC's second-largest supplier. Still, most analysts suspect the oil has far more downside than up—which removes the risk of an oil shock.

"Despite improving global demand, for the majority of commodities, we forecast that markets will move further into surplus, consistent with our view of moderating prices over a 12-month horizon," Goldman Sachs wrote this week. "This trend is particularly clear for those commodities which saw the largest increases in supply and flattening of cost curves," including oil and gold, the firm added.

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The steady decline in crude prices has finally translated into relief for consumers at the pump. Earlier in 2014, drivers chafed as retail gasoline—linked to the price of Brent crude, the contract most sensitive to international developments—toyed with the $4 per gallon range.

Now, the most recent AAA survey says the average price of gas has tumbled nearly 20 cents in the past month alone, to $3.47 on Wednesday.

"We continue to see downside risks…as U.S. crude oil markets will likely remain oversupplied this year and next," Bank of America-Merrill Lynch said on Wednesday, in a research note. "Strong shale oil production growth spells regional pipeline, refining and storage bottlenecks."

—By CNBC's Javier E. David