(Bloomberg) — Oil edged lower as investors awaited the outcome of the tightly contested U.S. presidential election, with Joe Biden on the brink of claiming a victory.
Futures in New York were trading below $39 a barrel after bouncing between gains and losses earlier. While predictions for a split Congress is fueling optimism that there will be no major changes to taxes or regulations that have underpinned an equity bull market, it also raises the likelihood of any post-election virus aid package likely being smaller than initially expected.
A demand recovery is much needed in the oil market, which is contending with a string of renewed lockdown measures across Europe that further threaten the demand outlook. Greece became the latest European country to declare a national lockdown, while England enters a four-week shutdown to curb the spread of coronavirus.
“Expectations for a Blue Wave where you would have gotten a $3 trillion stimulus, that’s not going to happen,” said Bob Yawger, head of the futures division at Mizuho Securities. “That would have been a huge positive demand event for crude oil.”
OPEC+ faces a tough test at its upcoming meeting at the end of the month, as the producer group weighs whether to move forward with a planned output increase. On Thursday, Saudi Arabia cut most of its oil pricing for Asia, with the demand outlook cloudy. Meanwhile, road traffic in some European countries has fallen to the lowest since June, while air traffic in the continent is seen unlikely to return to 2019 levels within the next for years.
“OPEC+ holds the key to support markets,” Bart Melek, head of global commodity strategy at TD Securities, said in a note. “The stark reversal in prices — despite the ongoing lockdowns — following reports that Energy Minister Novak discussed a delay in the planned tapering with Russian energy companies lends strength to our view.”
If the current trends hold and there is a divided U.S. government, Biden may have to scale back proposals to remove subsidies for oil producers, said Helima Croft, chief commodities strategist at RBC Capital Markets. However, he should be able to advance plans to re-enter the 2015 Iran nuclear deal, which could bring back 1 million barrels a day by the second half of 2021, she said.
Although Biden is closing in on the 270 electoral votes he needs to win the presidency, incumbent Donald Trump has sought a recount in Wisconsin, filed lawsuits in Michigan, Pennsylvania and Georgia and complained about various states’ counting procedures. Recounts and legal challenges could lead to a prolonged period of uncertainty.
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