Why Oil Isn’t Sweating Syria: Traders React

Heat rises from stacks at the Chevron refinery in Richmond, California.
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Heat rises from stacks at the Chevron refinery in Richmond, California.

The situation in the Middle East grew increasingly tense over the weekend, as Israel struck Syria with targeted air strikes, leading to increasing concern that a broader Middle East conflict could be imminent.

While oil traders and analysts credited the tension with driving crude up nearly two dollars on Sunday, crude quickly retreated on Monday morning, and traded below its Friday close.

"Surprisingly enough, we're selling down," said Addison Armstrong, director of market research at Tradition Energy. "It will be different if Syria launches strikes against Israel, but for now, the market seems to be taking it as not such a big deal."

One aspect to note is that neither Israel nor Syria is a major player in the oil markets. However, "it's not about Syrian oil," Armstrong notes. "It's about tensions in the Middle East. This conflict is not just Israel versus Syria, it's a proxy war that involves Iran. And wars can be very unpredictable—that's the risk premium that the oil market always has to face. And sometimes it's less, and sometimes it's more."

(Read More: US Crude May Hit $100 on Payrolls, Geo-Politics)

But in the broader picture, a nod lower for crude makes sense to Armstrong. "We're pushing up against the highs for the year, and the fundamentals don't support it," Armstrong said. "The only thing that will get us moving into new highs for the year is the situation in Syria. Otherwise,the fundamentals are pointing lower."

Anthony Grisanti, founder and CEO of GRZ Energy, believes that the market is consolidating after Friday's 1.7 percent jump. "We were overdone because of the jobs number," he said. "One-hundred-sixty-five thousand jobs doesn't equate to a huge uptick in demand for oil products."

For that reason, if not for the news out of Syria, "we would be a lot lower today," Grisanti said.

As oil trader Dan Dicker pointed out, "We've had a nice rally here. We had oil under $90 just under a week or so." He thinks WTI crude oil will continue go higher, but not because of Syria.

"There is continued catching up of domestic crude to global crude pricing, and that will continue," said Dicker, who is the president of MercBloc.

Jeff Kilburg of KKM Financial says the bottom line is that volatility is back. "We have zero certainty right now, and it seems like tensions are finally escalating," he said. "The political tension over there really ripped up a lot of shorts."

So how is Kilburg playing oil now? "As long as the stock market is up here, oil prices will continue to tick higher to $100," Kilburg said.

GRZ Energy's Grisanti is of a similar mind: "In this situation, you probably want to be long crude oil."

— By CNBC's Alex Rosenberg

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