- Results on Wednesday revealed that Trump won the US presidential election.
- Markets slashed bets for a December Fed rate cut from 77% to 67%.
- US crude inventories increased by 2.1 million barrels last week, above estimates.
Oil prices fell on Wednesday and Thursday as traders digested the implications of a Trump presidency. At the same time, dollar strength has weighed on prices by making oil more expensive for foreign buyers. Meanwhile, market participants awaited the FOMC policy meeting, which is coming later on Thursday.
Dollar vs Brent (Source: Bloomberg, ICE)
Results on Wednesday revealed that Trump won the presidential election, bringing back the Trump trade. Trump has proposed tax cuts and tariffs on imported goods that will likely boost the local economy. At the same time, it might lead to a spike in inflation, which would pause Fed rate cuts. As a result, the greenback soared, reducing demand for more expensive oil in foreign countries. Meanwhile, markets slashed bets for a December Fed rate cut from 77% to 67%.
Furthermore, Trump’presidency could reshape the Middle East war, given his support for Israel. Meanwhile, the Republican president might put sanctions on Iran, a major oil-producing country. Such an outcome would support oil prices.
Meanwhile, investors are also eagerly awaiting the FOMC policy meeting. The US central bank started its rate-cutting cycle in September with a 50-bps rate cut. After that, market participants were pricing another super-sized cut in November. However, economic data from the September meeting to November surprised most experts. The US economy has remained resilient, and consumer inflation has paused its decline. As a result, markets are pricing a more gradual pace for rate cuts.
Furthermore, Fed policymakers have assumed a more cautious tone, increasing the likelihood of a pause in December. During the November meeting, investors will look for clues on the December rate cuts. If the Fed signals a rate cut, oil prices will increase. On the other hand, a cautious tone will lower rate cut expectations and hurt oil.
Elsewhere, data in the previous session revealed that crude inventories increased by 2.1 million barrels last week, beating estimates for a 1.1 million barrel increase. The increase was a sign that demand was weak, leading to a decline in oil.
Before the US election, oil jumped after low prices prompted the OPEC+ group to postpone an output increase it had planned for December. The extension for output cuts came due to poor global demand.
