Oil down 1% as U.S. dollar firms on bets of split White House, Senate
U.S. oil prices dropped on Thursday as the dollar strengthened on growing expectations Democrat Joe Biden would win the U.S. presidential election but the Republicans would retain Senate control, holding back any huge COVID-19 relief package.
U.S. West Texas Intermediate (WTI) crude futures fell 40 cents, or 1%, to $38.75 a barrel at 0141 GMT, while Brent crude futures dropped 41 cents, or 1%, to $40.82 a barrel. Both contracts had jumped around 4% on Wednesday.
“The volatility in oil will remain because of its sensitivity to the U.S. dollar. And the U.S. dollar will remain volatile for at least the next few days as the U.S. election still has to be worked out,” said Commonwealth Bank commodities analyst Vivek Dhar.
Oil prices generally fall as the U.S. dollar rises because crude priced in dollars becomes more pricey for foreign buyers.
Democrat Joe Biden said on Wednesday he was headed toward victory over President Donald Trump after claiming the crucial Midwestern states of Wisconsin and Michigan, while Trump’s side opened a multi-pronged attack on vote counts through the courts.
However current vote counting and trends suggest the Republicans will retain control of the Senate, while the Democrats will hold a slimmed majority in the House of Representatives. A divided Congress would likely prevent Biden from enacting major priorities like fighting climate change or easing sanctions on oil producer Iran.
“Fortunately for oil markets, it would seem any olive branch to Iran will not be extended anytime soon,” said Stephen Innes, chief market strategist at Axi.
Oil prices had surged on Wednesday on growing expectations that the Organization of the Petroleum Exporting Countries and its allies, together called OPEC+, would hold off on bringing back 2 million barrels per day of supply in January given demand has been sapped by new COVID-19 lockdowns.
The market also was buoyed on Wednesday by a larger than expected drop in U.S crude stockpiles, although that was partly due to short-lived production halts in the Gulf of Mexico ahead of Hurricane Zeta.
Analysts said U.S. inventory data was not all positive, with gasoline inventories having risen by 1.5 million barrels, against analysts’ expectations for a drawdown.
At the same time, average highway use in France, Italy and Spain has dropped to its lowest level since late June, “which doesn’t bode well for gasoline demand,” ANZ Research said.
“This is likely to put pressure on the OPEC+ alliance to delay its planned rise in output in January,” ANZ Research said.