Oil drops as US election uncertainty dominates markets

Oil prices fell on Thursday as Democrat Joe Biden edged closer to the White House in a nail-biting US presidential election, though doubts remain over further huge stimulus to bolster the US economy in the face of the coronavirus crisis.

Brent crude fell $0.17, or 0.4%, to $41.06 a barrel by 1135 GMT and US West Texas Intermediate (WTI) crude was down $0.28, or 0.7%, at $38.87. Both contracts had jumped about 4% on Wednesday.

Biden predicted victory over President Donald Trump after winning two critical US states while the Republican incumbent alleged fraud, filed lawsuits and demanded recounts in a bitter contest that has yet to be decided.

A drawn-out court battle over the results could cause additional uncertainty in the market, spawning further sell-offs within risky asset classes.

“A Trump win will likely be bullish for oil, at least more bullish than under a Biden administration,” said Tamas Varga at oil brokerage PVM.

“Joe Biden will rejoin (the Paris climate agreement). He would also soften the US stance on Iran, consequently global oil supply could rise.”

Current vote counting and trends suggest the Republicans are poised to retain control of the US Senate, while the Democrats will hold a slim majority in the House of Representatives.

A divided Congress could hamper Biden’s plans on climate change, economic stimulus and easing of sanctions on oil producer Iran.

Oil prices had surged on Wednesday on growing expectations that the Organisation of the Petroleum Exporting Countries (OPEC) and its allies, together called OPEC+, would hold off on bringing back 2 million bpd of supply in January, given demand has been sapped by new Covid-19 lockdowns.

“The volatility in oil will remain because of its sensitivity to the US dollar. And the US dollar will remain volatile for at least the next few days as the US election still has to be worked out,” said Commonwealth Bank commodities analyst Vivek Dhar.