A possible victory for the Republican candidate and former US president Donald Trump in the US elections is expected have a bearish impact on the oil market, further dragging crude prices, experts opine.
Trump at the helm could translate into freer movement of Russian oil globally, weighing on already declining crude oil prices, experts told Moneycontrol. Benchmark Brent on November 6 is trading around $74 per barrel, down around 2 percent from the previous day’s close.
“What the market is pricing in, when Trump is going to be the next President, is that there would be mitigation in geopolitical risk…Coming to the Russia-Ukraine war, there is a hope that Trump has the knack to resolve this issue. Trump has been talking that during his first regime there were no global wars and this is what he's trying to again reinforce that he would bring an end to this issue. So, the risk premium which has been there in oil for quite some time, would get diluted,” said Hitesh Jain, Lead Analyst at Yes Securities.
Crude oil production from the US is also expected to pick up with Trump winning the Presidency race in the US as the Republican leader essentially has a pro-hydrocarbon approach. Experts believe that crude oil prices could also fall amid higher production from non-OPEC, which would balance lower supply from the Saudi Arabia-led oil cartel OPEC+.
On November 3, the Organisation of Petroleum Exporting Countries and its allies (known as OPEC+) decided to delay increasing production till December 2024 to support oil prices.
“With Trump back in power, he has always been pro-hydrocarbon, pro-oil. So, he will obviously pursue higher oil output. That means that US oil output will be much higher than the IEA estimates, which is a bearish narrative (for the oil market)… So, both these factors, the falling geopolitical risk premium and high oil supply would translate into lower oil prices,” Jain added.
Trump’s Iran stance
With Trump winning the US elections, expectations have dramatically subsided around Iranian oil coming back to the market. The oil market would majorly be unaffected by Iranian oil not being available in the market as China was the only buyer until now, say experts.
The Trump administration in 2018 had re-imposed sanctions on Iran, blocking crude oil supplies from the country. In 2015, Iran had signed a deal with world powers, under which it would halt nuclear activity once sanctions against it were lifted. The US President, Joe Biden was in talks with Iran to get the country to again agree to the terms of the 2015 nuclear deal, which was withdrawn by his predecessor.
“Iranian oil has not come back to the market. At that time, Trump was against and in case now that he is back, probably those kinds of things will continue. But in any case, Iran was not selling oil in the market. So, not much impact on the (oil) market may be seen as only China was majorly buying oil from Iran. But overall, with the kind of approach Trump has, Russian oil is expected to move more freely in the market,” said Prashant Vasisht, VP & Co-Head, Corporate Ratings, ICRA.
Volatile crude prices
Waning demand from several countries, primarily China, have weighed on the crude oil prices in recent months, offsetting the impact of heightened geopolitical tensions. The benchmark Brent crude slid to $69 on September 10, the lowest in three years.
Global oil prices have been highly volatile in 2024, breaching $90 per barrel in April due to geopolitical crisis in the Middle East, before plummeting to around $72-75 a barrel currently due to demand concerns from China.
“Crude oil prices experienced significant volatility last week, rebounding from earlier lows due to a decline in US oil stocks and heightened geopolitical tensions. US crude oil inventories fell by 0.5 million barrels, contrary to expectations of a 1.5 million barrel increase, and were well below the previous week’s stock level of 5.5 million barrels. The recovery in crude prices was further supported by geopolitical unrest in the Middle East and the potential postponement of production increases by OPEC+ nations. However, gains were tempered by the strength of the US dollar and weak economic data from Europe,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd in a note.
Morgan Stanley in September said that the global oil market is facing a period of demand weakness similar to that seen during recession. Slowing consumption from China due to weaker-than-expected economic growth and deeper penetration of cleaner fuels and electric vehicles in that country has reduced its offtake of crude oil.
India—a net importer of crude oil—is highly sensitive to international oil prices as it receives over 85 percent of its requirements from other nations. This directly links the retail prices of petrol and diesel sold in the country to prices in the international market.
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