A series of supply squeezes have helped keep oil strong this year but some of them have been short-term factors and could give way to longer-term weakness as the outlook for the world economy and global fuel demand dims.
The uprising against Muammar Gaddafi in Libya, production problems in the UK and Norwegian North Sea, lower supplies from Russia, central Asia, Nigeria and Angola have all cut supplies, especially of high quality, light, low sulphur crude oil.
More than 2 percent of global oil supply has been lost at a time of buoyant demand from emerging economies such as China, keeping the oil market, in the words of a Merrill Lynch report on Tuesday, as tight as a drum.
Brent crude has stayed above $100 a barrel for most of the year and hit $127 in April, its highest since 2008.
But as economic growth slows in the United States and debt crisis deepens in the euro zone oil demand may be slowing.
And the economic downturn is coinciding with the removal of some of the supply issues that have been supporting the market as Libyan oil exports restart and North Sea maintenance ends.
The oil market is caught between bearish macro-economic factors and bullish micro-economic factors in the oil sector itself, said Julian Lee, senior energy analyst at the Center for Global Energy Studies in London.
Many analysts say the twin poles of micro strength in the oil market and macro weakness from a slowing global economy are strong enough to hold for some time, but others are convinced that a period of serious weakness may be imminent.
Regardless of the current strength of prompt prices, we think there is room for a downward correction in the coming weeks, said Christophe Barret, global oil analyst at French Bank Credit Agricole.
The longer-term outlook appears weaker for oil prices. The economic environment remains very weak in Europe and the United States, renewing fears of a significant slowdown in the coming months, Barret added.
One sign of the changing attitude to oil prices can be seen in Brent futures, where spreads between nearby oil futures and forward contracts have switched in recent months with forward prices now at a substantial discount to prompt.
While futures prices are not a prediction of where the market will go, they are a reflection of current concerns and a deep forward discount shows tightness is seen as temporary.
A divergence between stock markets and oil prices could also be a warning signal. Since July, global equities have taken a dive with the MSCI World stock index <.MIWD00000PUS> losing around 15 percent, while Brent has fallen by only half of that.
The last time there was a similar divergence, in 2008, it heralded both a sharp fall in oil prices and a deep recession.
Copper, a good indicator of real industrial demand, has also taken a sharp tumble since July, leaving oil behind.
$75 PER BARREL
Chris Weafer, chief strategist at Russian investment company Troika Dialog, said valuations in the Russian stock market, sensitive to oil, are already pricing a substantial fall in the price of Urals crude, which is similar to Brent.
The current equity market level reflects Urals nearer to $75 per barrel, Weafer said.
The biggest single change to oil supply over the next year is likely to be the return of Libyan oil production, which was pumping at around 1.6 million barrels per day (bpd) before the uprising in the country took hold in February.
Saudi Arabia and the Organization of the Petroleum Exporting Countries members have raised output to fill the gap left by Libya and will pump less as Libyan exports resume, OPEC Secretary General Abdullah al-Badri has said.
But past experience suggests it is harder to cut output than increase it, especially when spot prices are slipping.
Credit Suisse Private Banking commodities analyst Stefan Graber says even with lower oil production from the rest of OPEC, global oil demand may not be strong enough to absorb Libyan oil when it returns to the market
Moderating short-term momentum suggests that prices could extend their pullback in the days ahead, Graber said.
Ultimately, prices will reflect the pace of global oil demand growth, which has tended to be equivalent to around 90 percent of global economic growth minus 2 percentage points.
Most forecasts of global GDP growth next year are between 3.5-4.0 percent, suggesting modest growth in oil consumption.
But the most recent Reuters poll suggests the probability of a recession in the United States, euro zone and UK is now about one in three, dangerously close to where such predictions have been correct in the past.
And if Europe can't solve its debt and allows it to become a global financial crisis, as some bankers fear, oil could collapse. David Hufton, head of brokers PVM Oil Associates says:
If we come out of next weekend with another set of anemic announcements there is no prospect that oil prices, or any other risk assets, will hold at anything like current levels.
(Editing by James Jukwey)