Oil prices dipped on Wednesday as investors weighed a strong dollar against the potential that U.S. President-elect Donald Trump’s foreign policy plans could squeeze global oil supply.
Brent crude oil futures were down 17 cents, or 0.23%, at $75.36 per barrel by 12:42 p.m. EST (1742 GMT). U.S. West Texas Intermediate (WTI) crude fell by 8 cents or 0.11%, to $72.07.
Trump’s election triggered a large sell off that pushed oil prices down by more than $2 per barrel during the session as the U.S. dollar was set for its biggest one-day rise since March 2020. A stronger dollar makes greenback-denominated commodities such as oil more expensive for holders of other currencies and tends to weigh on prices.
“There was an over-reaction to the election results, and that a Trump victory could have caused the U.S. industry to sort of drill itself into oblivion and cause a glut,” said John Kilduff, partner at Again Capital in New York.
“But cooler heads have prevailed and this market has a lot of problems on its hands,” he added, citing ongoing war in the Middle East as a supportive factor because it could weigh on supply.
Trump’s re-election could also mean the renewal of sanctions on Iran and Venezuela, removing barrels from the market, which would be bullish, UBS analyst Giovanni Staunovo said.
Iran is an OPEC member with production of around 3.2 million barrels per day or 3% of global output.
Trump’s support for Israeli Prime Minister Benjamin Netanyahu could also heighten instability in the Middle East, according to Andrew Lipow, president of Lipow Oil Associates. This could boost oil prices as investors price in a potential disruption to global oil supplies. Trump is expected to continue arming Israel.
Independent analyst Tina Teng said Trump might also pursue policies that further pressure the Chinese economy, weakening oil demand in the world’s top crude importer.
But setting aside the U.S. election and geopolitical uncertainties, persistent trends in oil markets are likely to shape the outlook ahead, Mukesh Sahdev, global head of commodity markets, oil at Rystad Energy said in a note on Wednesday.
OPEC+ still pulls the strings, refinery margins battle weaker demand and higher supply and oil trade flows continue to battle inefficiencies, according to Sahdev.
Meanwhile, U.S. crude oil, gasoline and distillate inventories rose last week, the EIA said.
Crude inventories climbed by 2.1 million barrels to 427.7 million barrels in the week ending Nov. 1, the EIA said, compared with analysts’ expectations in a Reuters poll for a 1.1 million-barrel rise. (Reuters)
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