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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Breaking The Pattern: Trump Wins, Oil Jumps

Trump speech

In early afternoon yesterday, with voting at full swing across the U.S., West Texas Intermediate was trading at US$45.23 a barrel, up almost a percent from opening.

But by 11:30 PM (EST), WTI had slumped to US$43.72 a barrel—down a hefty 2.80 percent—as the pollsters and statisticians crunched the numbers and called first Florida, then North Carolina and Ohio for Trump, making the path for a Clinton nearly insurmountable.

As the red-blue puzzle began to take shape, it started to look like a Republican-dominated picture of the country, and the markets—not just the oil markets—were a bit unsettled.

Then by 6.15 AM EST, the USA had a new president elect, and the crude oil benchmark was at US$44.98 a barrel, making up for its earlier losses, and on its way to gains.

The fact that the markets would be unsettled with such an unknown taking a win was no surprise. The oil markets seem to rattle easy these days, and the pattern has always been that oil prices dive whenever a new president is elected. The losses are more severe with unknowns than they are with second-term winners. Despite this trend, usually by inauguration day, the losses turned into gains.

This time around, Trump taking home the win wasn’t the only surprise—the big upset here is that oil markets seem to have rebounded already, despite Trump’s wildcard-status.

When the vote began on Tuesday, crude oil rose a little. Almost all the polling foretold a Clinton win—even conservative pollsters. The earlier rise reflected a very jittery market and also a similar increase in equities, caused by initial expectations that the Democrat candidate would surely win the vote—a Trump victory looked hard to come by, even after his initial Ohio win, which was a big win.

Investor sentiment was in favor of Clinton, because as is typically the case with the markets, a known entity bolsters prices.

Indeed, Donald Trump’s election rhetoric has left a lot to be desired but the results have shown that rhetoric is not the first thing voters care about, specially after Trump’s election night speech, which showed that the controversial rhetoric was strictly for the run-up to the vote. Related: Post-Election Oil Prices: Can We Expect A Plunge?

Trump’s pledge to support the U.S. energy industry and de-regulation the Regulation Nation was the likely push behind oil’s rock-solid performance, although prices could flop later today if the EIA reports a fresh and substantial build in inventories.

There are no tried-and-true methods for deciphering what will happen to the markets this go-around. The oil market is a fickle thing indeed. And if this election taught the US anything, it’s that everything is upside down and on its head. Whatever preconceived notions or plans the analysts thought up, whatever formula someone has used to predict what will happen next, needs to be thrown out the window—a Trump presidency is a new beast that will not be tamed.

It is possible that prices may continue to stabilize until the end of the month, ahead of the November 30 OPEC meeting, in hopes that the organization will finally reach the much-hyped agreement to cut production as a means of rebalancing the market, although it looks like a rocky road is still ahead for the oil markets, which seems to rise and fall with every OPEC or Russian word. With the election now in the rearview mirror, at least that’s one market disruptor off the table.

The bigger upset for the oil market is, if the cartel’s members fail to reach a mutual understanding, a US$20-a-barrel scenario becomes a real possibility as oil’s fundamentals are still very far from favorable for the industry and bullish investors.

But come January, OPEC deal or no, it will be interesting to see how the oil markets react under a Trump presidency, and even more interesting to see how the energy industry fares under his watch.

By Irina Slav for Oilprice.com

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Leave a comment
  • JP DeCaen on November 09 2016 said:
    It's easier for prices to crash when there's a perception that they have a bigger sustainable downside risk. In the present situation, probably few believe that a dip of greater than something like five dollars per bbl can be sustained for any period. That makes the situation very different from an administration change in a period of higher prices.
  • Jack Ma on November 09 2016 said:
    Oil will not be at 20 ever.

    Trust me and trust my research.

    This was a fun read but it's getting more and more desperate in an attempt to promote low oil for short bets maybe? You have a great mind, so use it productively always for the benefit of humanity.

    Thanks and keep writing...

    Warmest regards.

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