Oil prices bounced back on Thursday after having fallen as uncertainty in the markets about the US presidential election flared briefly. A Trump presidency is worrying investors with the prospect of a potential change in oil supply policy, to say nothing of a strengthening US dollar and rising oil inventories. A massive storm brewing in the Gulf of Mexico may soon disturb supplies. Hurricane Rafael is intensifying, cutting some production already.
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Brent crude futures for early trading prices rose to 26 cents per barrel to $75.18 after the election result triggered an initial sell-off in early trading, while U.S. West Texas Intermediate climbed 16 cents to $71.85 per barrel. A volatile mix of geopolitical, economic, and environmental factors did not seem to break the market.
The Trump administration is likely to roll back its draconian sanctions on Iranian and Venezuelan oil exports, which would substantially cut global supply. During his first term, Trump imposed sanctions on Iran, which may pare back oil exports by as much as 1 million barrels per day. China could still buy oil from Iran, which may thwart the full cessation of exports. Similarly, a new Trump presidency may lead to more curbs on Venezuelan crude exports; in contrast, the Biden presidency had been oriented to some relief from this sanction.
Another type of stress on oil markets from a monster storm in the Gulf of Mexico. Hurricane Rafael, now a Category 3 storm, has trimmed U.S. crude production in the region by 17 percent, or about 304,418 barrels a day. Oil majors may soon have to halt offshore drilling and refining should the storm hit the region hard, with some already closed preemptively in anticipation of the storm.
Another of these supply threats is the rising oil inventories in the United States. According to the U.S. Energy Information Administration, crude inventories grew by 2.1 million barrels last week to November 1, higher than the 1.1 million barrels forecasted increase. A more significant factor driving the current dynamics of prices is also the strengthening U.S. dollar, which tends to make oil more expensive for holders of other currencies, thus possibly capping demand.
Conclusion:
The oil market is at its most turbulent phase, given the U.S. election outcome, the expected sanctions by Trump, the increase in inventories, and extreme weather in the Gulf. Investors will likely watch closely because changes in supply conditions or policy directions can cause major fluctuations in global oil prices. As the geopolitical landscape continues to shift and environmental pressures build, oil prices will remain volatile in the next few weeks.
Source: Reuters