- Oil Slumps as Prospect of Trump Victory Roils Global Markets
Oil slumped as initial results indicating Republican Donald Trump may prevail over Hillary Clinton in the race for the U.S. presidency threw global markets into turmoil.
Futures tumbled as much as 4.3 percent in New York to the lowest since September while U.S. stock index futures and Asian equities fell with the Mexican peso. Investors are fleeing riskier assets and pouring into havens such as Treasuries and gold. In addition to winning the key states of Florida and North Carolina, Trump captured Ohio, giving him a path to beating his Democrat rival.
A possible Trump win is unhinging markets that had banked on a continuation of economic and trade policies under a Democrat president. Most polls had shown Clinton ahead of Trump going into the vote and websites that took bets on the victor had put her odds of winning at 80 percent or more. Oil may fall as much as $2 with a Trump victory, Citigroup Inc. analysts wrote in a Nov. 4 report.
“Oil prices will be crushed if Trump is elected,” said Hong Sung Ki, Seoul-based commodities analyst at Samsung Futures Inc. “If he gets elected, the impact will be greater than Brexit. Market preference for havens will be much stronger, while risk assets, including oil will plunge.”
West Texas Intermediate for December delivery dropped as much as $1.91 to $43.07 a barrel on the New York Mercantile Exchange and was at $43.85 at 2:17 p.m. in Hong Kong. The contract gained 9 cents to $44.98 on Tuesday. Total volume traded was more than sevenfold the 100-day average.
Brent for January settlement dropped as much as $1.64, or 3.6 percent, to $44.40 a barrel on the London-based ICE Futures Europe exchange. The contract declined 11 cents to $46.04 on Tuesday. The global benchmark traded at a 45-cent premium to WTI for January delivery.
The final results of the state by state fight for the presidency were still being tallied early Wednesday, but signs were pointing Trump’s way after he won Florida, Ohio, Iowa and North Carolina. Clinton pulled out a victory in Virginia and Colorado — two states critical to her chances — but Trump was competitive in three other states she was counting on, New Hampshire, Wisconsin and Pennsylvania.
“The market is concerned about Trump’s trade policies,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “The market view is that the imposing of significant import tariffs on China and Mexico and others will likely slow world growth and creates the possibility of trade wars with retaliatory action from China.”
If Trump wins, oil prices could fall $1 to $2 below $45, if gold increases along with a sell-off in U.S. equities and other risk assets, Citigroup analysts said in the report. However, a Trump victory could “push some investors to perceive additional geopolitical risk in the market, which may buttress oil prices,” the analysts wrote.
In a special report on Nov. 7, Societe Generale SA said neither election outcome would have a profound impact on oil, while analysts at Nomura Holdings Inc. said a Clinton victory combined with an OPEC deal could trigger sharp rebounds.
If Clinton wins, investors would be watching to see if she follows through on pledges to reduce water pollution and methane emissions from hydraulic fracturing. Fracking, which along with horizontal drilling unlocked hard to reach oil and gas resources from shale formations, enabled the U.S. to boost production by more than 4 million barrels a day from 2011 to 2015.
Longer term, the reaction in oil markets to the election result would likely take a back seat to questions over whether OPEC will be able to complete a deal to restrain output at its late November meeting in Vienna.
“Oil prices are in for some volatility until the dust settles,” said Tushar Tarun Bansal, director at industry consultant Ivy Global Energy in Singapore. “However, either outcome doesn’t change the immediate supply demand fundamentals in the short term. It does add to the long term uncertainty about the global markets.”
Oil has retreated below $45 a barrel following the Organization of Petroleum Exporting Countries’ failure to agree on output quotas for member countries on Oct. 28. The group must reach a consensus before finalizing its September deal to cut production. OPEC’s chief warned of prolonged market instability if there is no agreement to limit supply.
U.S. natural gas futures were also down as much as 3.3 percent in electronic trading, extending their biggest decline since July. A Trump victory would mean an 11 percent drop in power plants’ gas demand in 2030 from 2015 levels, while a Clinton win would boost demand by 5.8 percent, based on Bloomberg Intelligence estimates in September.
In other oil market news:
- Militants below up the Forcados oil pipeline in Nigeria, Niger Delta Avengers’ spokesperson Mudoch Agbinibo wrote on Twitter.
- U.S crude supplies rose by 4.4 million barrels last week, the American Petroleum Institute was said to report Tuesday. Government data Wednesday is forecast to show stockpiles gained 2 million barrels.
- Energy companies led declines in Asia. Australian producer Santos Ltd. dropped 7.5 percent, the most since May. China Petroleum and Chemical Corp., the world’s biggest refiner known as Sinopec, slumped as much as 7.8 percent during intraday trading in Hong Kong.