While it is unclear if geopolitical news, or expectations of imminent QE3 is what just drove WTI to $89, the update from AP that Israel has sent two warships to the border with Egypt will likely not help the oil deflation case. From the AP: "The Israeli military says it has sent two more warships to the Red Sea border with Egypt following warnings that militants are planning another attack on southern Israel from Egyptian soil. Earlier this week, Israel's military ordered more troops to the border following intelligence reports of an impending attack. Israel's home front minister said Tuesday that militants from the Gaza-based Islamic Jihad are in Egypt's Sinai peninsula waiting to attack. Gunmen who infiltrated Israel through the porous Egyptian Sinai border killed eight Israelis earlier this month. The attack sparked calls to increase security on both sides of the frontier and created new tensions between Israel and Egypt. No changes in security alignments were observed on the Egyptian side of the border." And as the market now gyrates violently without any clear idea what to do until Thursday's ISM and Friday's NFP either seal the deal for QE3 or not, expect geopolitical headline risk to return with a vengeance.

As a reminder, here is the latest distribution of US naval assets as of August 24, courtesy of Stratfor. We doubt the status quo of just one aircraft carrier patroling the Gulf region will remain for long.