Uncertainty caused by the transition…
Oil prices fell back early…
Having plunged immediately after Donald Trump won the U.S. presidential vote, oil prices shook off the shock from the surprise election victory, almost pared losses, and were even trying to look up in early trade on Thursday.
As of 7:11 AM (EST), West Texas Intermediate Crude traded down 0.57 percent at US$45.01, while Brent Crude was inching up 0.11 percent to trade at US$46.41.
On election day, by 11:30 PM (EST), WTI Crude 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 it became clear that Trump would be the next president of the U.S., markets plummeted in the face of the unexpected and unknown, as they have always done. This time around, however, the sell-off was not as bad as initially feared, and oil markets, as well as some major equity indexes in Europe and the U.S., already traded in positive territory as early as Wednesday afternoon.
A day later, investors and analysts have recovered from the shock, and although they are still very cautious as to how commodities – oil especially – would react to the Trump uncertainty, they admit that oil and other commodities rallied after the initial plunge, with demand for safe-haven assets dropping after the first few shock waves.
“After initially selling off as it became clear Donald Trump would be the next president, commodity prices rallied strongly as the flight to safety unwound,” Reuters quoted ANZ bank as saying on Thursday in a note on Trump’s victory.
After markets dodged the panic-selling bullet, analysts are now looking into the president-elect’s energy program and intended (or promised) policies to try to gauge the direction of the markets. Trump has promised to open onshore and offshore leasing on federal lands, eliminate moratoriums on coal leasing, and open shale energy deposits.
Goldman Sachs sees America under Trump with increased investment and later, with increased domestic oil production. However, his not entirely clear positions on the Middle East (especially Iran) and protectionist policies are also a huge unknown factor for the short-term oil prices, just a few weeks before OPEC meets to discuss a possible production limits deal in a bid to lift oil prices.
According to Goldman Sachs, Trump’s declared hostile view on Iran’s nuclear deal could “further incentivize Iran to maximize production in the short term rather than comply to an OPEC freeze”.
A possible OPEC deal could be reached two months before Trump’s inauguration, but the cartel cannot ignore this unexpected presidential victory in the U.S.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.