Market Talk: The oil market 'has got savvy to the ebbs and flows of this war'

Oil traders are on edge as the US midterms approach. Oil prices are on track for their fourth monthly gain as markets brace for possible escalation in the Middle East. On Friday morning, a tanker in the Strait of Hormuz was hit by explosive devices attached by a small boat, while Qatari mediators are in Tehran as part of diplomatic efforts to resolve the conflict. But traders fear the U.S. could resume attacks on Iran after Tuesday's midterms. Naveen Das is an oil analyst at Kepler. Naveen, how nervous is the mood in oil markets? Well, I'd say nervous is definitely one way of describing it. I think the other way of describing it is that the market has gotten quite savvy to the ebbs and flows of this war. And I think a lot of the positioning has skewed towards the longer side in anticipation of the midterms. I think following the first five weeks of the war, the next real concrete date we had was the U.S. midterms. And it does seem like an inflection point. So I think a lot of the positioning has gotten long ahead of what may come around that date. And I think it's one way for the market to sort of manage its nerves by essentially skewing to the long side and basically waiting to see what happens next. Diplomatic efforts are still going on, though. Is the squeeze in Iran's own exports working to bring the Iranian government to the negotiating table? I think it is. I think what is clear to see is that the Iranian oil, Outside of the blockade zone has essentially fallen to zero now. So the economic pressure is working, and we're also seeing that in the fact that Iran is coming back to the table. But more importantly, any of the proposals they put forward seem to be for reopening the Strait of Hormuz in a very accelerated time period, five days, seven days, which is a change from the MOU. So this shorter time period suggests that there is a need from Tehran to access cash and to be able to lift the blockade so that their oil exports can bring cash back into the country. We also have an OPEC meeting this weekend. After the damage done to oil facilities in the Gulf earlier in the year, are member countries anywhere close to meeting their own targets? In short, no, they're not. Output is still well below what the quotas are mandating, what all the countries, especially in the Middle East, would want to produce. What is important to note, though, is as this conflict goes on, the OPEC plus view or their statement in terms of the supply that they can put to market, Are you expecting them to ramp up production as much as is practically possible then? I think when the landscape... is it's a fertile for that to be the case which means a sustainable and robust you know let's say end of the conflict or some sort of agreement which gives assurances for Middle Eastern producers to ramp up production i think that they still will be quite let's say measured and delicate in how they bring production back online simply because they also don't want to trigger a price war budgets have been hit this year because of crimped output and the last thing they want is a world whereby oil prices crash and they're also getting hit on their budgets even though their exports and production is higher. So I think it will be a managed and phased return when it is possible to do so. These high oil prices are feeding into huge profits at the oil majors. Shell, Total and this morning Exxon have reported big jumps. What's that going to mean for the longer term in crude markets? Will they invest in new drilling or new refining capacity? Again, it really depends on the particular regions. You're right to point out the high earnings. And I think these companies are looking at pockets or regions of the world where the return on investment can be both robust but also fairly quick. We've seen a lot of capital, let's say. That was Naveen Das of Kepler, don't forget you can watch more videos on Reuters.com