Singapore: Oil pared gains and gold fell as early U.S. election results shook traders’ faith in a decisive outcome.
Oil in New York rose 1.9%, paring an earlier advance of as much as 3.4%. Spot gold fell 0.3%, while the dollar edged higher. Market uncertainty may lead to heightened volatility over the next few hours as traders react to headlines and early clues of a possible Donald Trump or Joe Biden victory.
Early results from states went according to predictions. Trump held a narrow lead in Florida, which his campaign considers crucial for his re-election hopes. Tallies suggested the outcome will be closer than polls had suggested.
“The oil market seems to be on tenterhooks for this election’s results more than any other in the recent past,” said Vandana Hari, founder of Vanda Insights in Singapore. “Intraday volatility may reflect traders attempting to do the impossible: take a position based on their estimate of the final outcome.”
The stakes have never been higher in a presidential election as whoever wins will have the monumental task of leading the U.S. in its fight against a virus that’s claimed more than 230,000 lives in the country and decimated the economy. On a global level, the next president will also play an integral role in shaping domestic as well as international efforts against climate change, the use of fossil fuels and the pace of energy transition.
During his presidency, Trump took a hard-line stance against major oil producers Iran and Venezuela by means of crippling sanctions, tightening global oil supplies. He also drove an escalation of trade tensions with China that prompted a rerouting of global commodity trade flows. And his support for American shale producers helped the nation’s output rise to a record, adding more supplies to the global pool.
A victory by Biden could pave the way for the roll-out of more fiscal stimulus that could lift equity and commodity markets –- particularly gold, which benefits from a weaker dollar due to money printing — in the near term. It could also lead to stricter regulation of shale drillers and also signal a detente with Iran, which would unleash millions of barrels a day in fresh crude exports. A Biden win would likely accelerate the transition away from fossil fuels in the U.S., which could boost long-term demand for metals like nickel and copper.
A scenario in which neither candidate has a clear path to victory would be murkier for oil and other commodities, as investors would likely seek safe havens like gold while they waited for what could be a long battle over ballots. A marginal win by Biden in which Republicans retain control of the Senate may also unsettle investors, as they would be reminded of the divisions that have stalled promised fiscal stimulus in recent weeks.
“No matter who wins, we’re not going to see an overnight change in policy,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “From that standpoint, it would take some time for the oil market to reflect on what those new policies would be and their impact.”
Oil’s futures curve shows there’s still some concern about a potential glut even after signs the OPEC+ alliance will delay easing production cuts. Brent’s three-month timespread was $1.25 a barrel in contango, where prompt prices are cheaper than later-dated ones, compared with around $1 in mid-October.
-With assistance from Ranjeetha Pakiam. -Bloomberg