The oil market has so far shrugged off rising U.S.-Saudi tensions over the killing of journalist Jamal Khashoggi by agents of the kingdom in Turkey, but the saga appears to be far from over.
A chorus of U.S. lawmakers is questioning Saudi Arabia's official story about the murder, raising the prospect of sanctions or a ban on weapons sales to Riyadh. A speech by Turkey's president slated for Tuesday could give the lawmakers fresh ammunition by further undermining the kingdom's narrative.
Just one week ago, Saudi Arabia was denying any role in Khashoggi's disappearance and vowing to retaliate against foreign countries that sought to hold the kingdom accountable. The veiled threat raised concerns that the Saudis would exact revenge on the United States and others by cutting oil supply and allowing crude prices to bubble higher.
The Trump administration is relying on Saudi Arabia to pump more oil to offset the effect of U.S. sanctions on Iran, OPEC's third biggest producer.
By Monday, Riyadh had acknowledged Saudi agents killed Khashoggi in Istanbul, Turkey, and the nation's energy minister was reaffirming the country's commitment to keep the global oil market supplied. Minister Khalid al Falih said the Saudis had no intention of implementing an oil embargo.
Oil prices were little changed on Monday, following a 3 percent decline for U.S. crude and a nearly 1 percent drop for international benchmark Brent crude last week. Analysts tell CNBC the market remains unconvinced that the Saudis would take the extraordinary measure of using oil as a tool of political retribution.
The Saudis have done a complete 180 since their initial, confrontational statement last week, said John Kilduff, founding partner at energy hedge fund Again Capital. In order for oil prices to react to the scandal, "the Saudis are going to have to get their backs up like they initially did that first weekend," Kilduff said.
The Saudis say Khashoggi died in a fight that broke out after agents confronted him in the Saudi consulate in Istanbul. Foreign Minister Adel al-Jubeir told Fox News the operatives overstepped their bounds by killing Khashoggi and then covered up the murder.
But on Monday, a spokesman for Turkish President Recep Tayyip Erdogan's political party said the incident was "monstrously planned," ahead of the leader's speech on Tuesday. On Sunday, Erdogan said he would explain Khashoggi's killing.
Turkish authorities have reportedly leaked details of the killing, even while the country conducted a joint investigation with Saudi Arabia into the disappearance.
The question is whether Erdogan's speech will largely align with the Saudi account of Khashoggi's death or whether the president will shock the market with new information, said Ayham Kamel, Middle East and North Africa analyst at risk consultancy Eurasia Group.
"So far I think there is some level of Saudi-Turkish cooperation to try not to create a diplomatic crisis between the two countries, and I think that gives President Trump some ammunition to shield the Saudis in Washington," he told CNBC's "Squawk Box" in Asia.
President Donald Trump initially said the Saudi account was credible but later said the Saudis were guilty of "lies" and "deceptions." Still, Trump maintained on Monday afternoon that he didn't want to lose investments from Saudi Arabia, a major buyer of U.S. military equipment.
Germany announced it would halt new weapons sales to Saudi Arabia on Monday.
U.S. Senators and members of Congress have taken a tougher line against Saudi Arabia, publicly questioning whether the kingdom's influential Crown Prince Mohammed bin Salman should remain in power. Prince Mohammed, often called MBS, has been linked to several of the operatives who allegedly killed Khashoggi.
Sen. Lindsey Graham, a senior Republican and close Trump ally, has called for sanctions on Saudi Arabia and said Crown Prince Mohammed bin Salman "has got to go." On Monday, he told CNN he felt betrayed by Saudi Arabia.
Republican Sens. Bob Corker of Tennessee, Rand Paul of Kentucky and Thom Tillis of North Carolina said in television interviews this weekend that they believe MBS likely orchestrated the operation.
On Monday, MBS met with U.S. Treasury Secretary Steven Mnuchin.
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