Saudi Arabia, the world's largest oil exporter, is mired in its biggest international crisis since King Salman took the throne in 2015, but one would hardly know it by looking at oil markets.
The market remains unconvinced that the killing of journalist and U.S. resident Jamal Khashoggi will cause a conflict that shrinks Saudi supply. At the same time, analysts say traders are taking profits after this month's oil price rally, while investors sell crude as the broader market sheds risky assets.
Oil prices have tumbled from nearly four-year highs just three weeks ago, despite rising U.S.-Saudi tension over the killing.
U.S. crude dipped below $66 a barrel on Tuesday, hitting a two-month low and dropping more than $11 from its high on Oct. 3. Brent crude, the benchmark for international oil prices, dropped to a more than six-week low, tumbling below $76, more than $10 below its own four-year high.
Saudi Arabia acknowledged Friday that several of its agents were involved in Khashoggi's death in the Saudi Consulate in Istanbul. The incident has sparked calls for sanctions against Saudi Arabia, a series of embarrassing intelligence leaks by Turkish authorities that undermined the Saudis' story and threats of retaliation from the kingdom.
The scandal initially raised concerns that Saudi Arabia would refuse to hike oil output as planned. The Trump administration is largely depending on the Saudis to fill the gap left by the loss of Iranian oil exports, which are subject to U.S. sanctions beginning Nov. 4.
However, Saudi Energy Minister Khalid al-Falih reassured markets over the past two days that Saudi Arabia intends to increase production as previously announced. He said there is no intention to hold back oil exports, after the nation's press agency released a statement last week threatening to retaliate against any foreign government that seeks to punish the country for Khashoggi's killing.
On Tuesday, Falih said OPEC producers are essentially producing as much as they can to make sure the market doesn't swing into undersupply. The Saudis frequently influence oil prices by making announcements about future production and export levels.
U.S. lawmakers have threatened to slap sanctions on Saudi Arabia or delay or cancel weapon sales to the kingdom, but they have not announced concrete measures.
Turkish President Recep Tayyip Erdogan said his country believes the slaying was planned, contradicting the Saudi account that rogue operatives accidentally killed him. However, Erdogan did not directly accuse Crown Prince Mohammed bin Salman of involvement and made no mention of audio recordings of the killing, which Turkish authorities claim to have.
During the rally earlier this month, analysts said crude futures had probably run up too far, too fast.
"The market is very much in neutral to the downside to some extent," Dan McTeague, senior petroleum analyst at Gasbuddy.com, told CNBC's "Squawk Box" on Tuesday.
"I think the markets are taking a bit of a breather," he said.
The continued declines over the last two weeks are not necessarily a sign that traders have turned bearish on oil, said Tamar Essner, director of energy and utilities at Nasdaq Corporate Solutions. Instead, they show traders are shedding risky assets and taking profits after strong gains for crude futures this year.
Essner said that thesis is backed by data from the Commodity Futures Trading Commission, which shows traders are trimming bets that oil prices will rise, but are not opening a massive amount of wagers that crude futures will fall.
"From a fundamentals perspective, the oil story could play out in multiple ways in terms of being oversupplied in the short term but potentially undersupplied early next year, depending on what happens to demand," Essner said, "so there is less conviction on bullishness but not substantial conviction that oil is going to slide either."
Forecasters like OPEC and the International Energy Agency have knocked down their outlook for demand growth. At the same time, U.S. crude stockpiles have risen by more than 22 million barrels over the last four weeks, the biggest increase since 2015, when the market was oversupplied.
Oil prices have also been moving in tandem with broad markets lately. Much of the losses for crude track with steep declines in stock markets in recent weeks. That volatility creates another reason to take some money off the table, said Essner.
U.S. crude was down nearly 5 percent as the Dow Jones Industrial Average plunged by more than 450 points on Tuesday.