Babin says "escalatory rhetoric" is increasingly falling on deaf trading ears: File Image/Pixabay.

Oil prices maintained their gains of the previous two sessions – but still lingered in the comparatively sedate high $80s in the case of Brent  – after U.S. president Donald Trump on Monday announced the tenth day of bombings in Iran, and the Islamic republic responded by firing missiles and drones at Kuwait.

Still, trading was relatively subdued despite the Iran-backed Houthi group vowing to block the Red Sea’s Bab el-Mandeb gateway to Saudi Arabia traffic; although military experts questioned the efficacy of this plan, analysts worried that such a blockade would prevent the kingdom from exporting millions of barrels of crude per day via its cross-country pipeline bypassing the Strait of Hormuz.

Oil prices on Monday briefly took a nosedive after mediators proposed a 10-day ceasefire to revive the U.S./Iran interim peace deal.

But the prospect of resuming diplomacy seemed unlikely, especially after it was reported that a tanker was struck on Monday by an unknown projectile while transitioning the Hormuz; this came on the heels of two Greek Dynacom tankers being hit by projectiles while sailing off the coast of Oman.

Still, Rebecca Babin, senior energy trader and managing director at CIBC Private Wealth, noted that “The mention of a diplomatic ‘apparatus’ has encouraged traders to assume there is still an off-ramp, and as long as that remains the prevailing narrative, it’s acting as a ceiling on panic buying.

“Traders have learned that some of the more escalatory rhetoric has often been walked back, so they’re waiting for evidence rather than pricing the threat alone.”

Babin added that after months of sharp war-driven trading swings, some traders are likely locking in profits and hesitant to chase the next leg higher.

For his part, Stephen Innes, managing partner at SPI Asset Management, offered that “investors are still treating the conflict as something they recognize and believe they can compartmentalize” and that the renewed hostilities are “being priced primarily as an oil, inflation and regional risk event rather than the beginning of a systemic shock.”