Oil prices fell more than one percent Monday after Saudi Arabia's de facto leader said war with Iran would destroy the world economy and hinted instead at a non-military solution.
Washington, Riyadh, Berlin, London and Paris blame Iran for attacks that damaged the Saudi oil sector on September 14 and forced the world's largest crude exporter to sharply reduce production.
Elsewhere Monday, stock markets diverged as traders tracked the latest twists and turns regarding the US-China trade war. The dollar was mixed against main rivals.
"In terms of geopolitical concerns, common sense is prevailing for now in Saudi Arabia," noted analyst Naeem Aslam at traders ThinkMarkets, in reference to the comments by Saudi Arabia's crown prince in an interview with CBS show "60 minutes" broadcast over the weekend.
Mohammed bin Salman said a war would be catastrophic for global growth.
"Oil supplies will be disrupted and oil prices will jump to unimaginably high numbers that we haven't seen in our lifetimes," the prince said.
"The region represents about 30 percent of the world's energy supplies, about 20 percent of global trade passages, about four percent of the world GDP. Imagine all of these three things stop," he said.
"This means a total collapse of the global economy, and not just Saudi Arabia or the Middle East countries." Iran's oil minister meanwhile on Sunday ordered his country's energy sector to be on high alert to the threat of "physical and cyber" attacks.
Bijan Namdar Zanganeh said "it is necessary for all companies and installations of the oil industry to be on full alert against physical and cyber threats", in a statement published on the oil ministry's Shana website.
Tehran has denied any link to the Saudi strikes, which were claimed by Huthi rebels in Yemen. Iran supports the rebels against a Saudi-led coalition that has been fighting the Huthis since 2015.
"Oil has been amazing everyone over the last couple of weeks, having surged on the back of the attack on the Saudi oil facilities before reversing the entirety of these gains, despite the country temporarily losing half its output," Craig Erlam, senior market analyst at Oanda trading group, said Monday.
"Traders are clearly not particularly concerned about risk premiums in oil... Instead, the focus again seems to be shifting back to the demand dynamics and the risk of further downgrades as the global economic slowdown takes hold," he added.
Elsewhere Monday, investors digested reports in US media that President Donald Trump is mulling severe new restrictions on investment in China.
Shanghai and Tokyo stock markets slumped the day before a week-long patriotic holiday begins in China, despite assurances from the US Treasury that there were no plans to stop Chinese companies from listing on US exchanges.
On Tuesday the Asian giant celebrates 70 years since the founding of communist China, with markets closed from October 1 to 7, while planned pro-democracy protests in Hong Kong threaten to disrupt festivities.
Shanghai closed down 0.9 percent as some investors took profits, with uncertainty fuelled by fears of an escalation in the US-China trade war that has raged for more than a year.
"The Sino-US trade negotiations have been full of twists and turns," said Zhang Gang, an analyst with Central China Securities.
"You don't know what remarks Trump would make in the next seven days, or what variables there will be from the US side. So (investors) have set themselves in a low-key, waiting position.
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