Oil prices took a dip on Thursday as the votes continue to be counted in the US presidential election and incumbent leader Donald Trump launches legal challenges in several swing states.
The benchmark Brent price (BZ=F) fell 1.1% at around 9:30am in London to $40.76 (£31.76).
It comes as expectations for a large US fiscal stimulus becomes increasingly unlikely as neither Trump nor his Democratic counterpart Joe Biden have a majority of votes. The election decision could take days to be determined.
While Biden appears to be closer to winning on Thursday morning in London, vote counting continues in several US states.
However, it does not look likely that the Democrats will win the Senate, which will make it more difficult to deliver a large $2tn spending package that would bolster the economy in the face of COVID-19.
On Wednesday, there was a nearly 8 million barrel drop in US crude inventories that added to bullish market momentum. Energy Information Administration data also suggested that stockpiles were rebalancing, despite gasoline inventories expanding. Earlier, the Organisation of the Petroleum Exporting Countries EC+ also indicated that the aggregate would delay a planned increase in production from January amid faltering global demand, which led to a momentary rally in oil prices this week.
“Oil prices are under a bit of pressure, given that a politically divided US makes it a more difficult job supporting the economy at a very fragile time,” said Michael McCarthy, chief market strategist at CMC Markets Asia Pacific. “Potential legal challenges and the quest for recounts could mean this process lingers on and on, and as it does the demand outlook remains dim.”
As for where prices are heading next, oil could taking its queue from the broader stock market rally, especially as a Biden administration will mean lower US production, said Craig Erlam, chief market analyst at OANDA Europe.
“The oil market is still working its way to balance and right now it seems WTI crude will remain range bound,” said Erlam. “The deteriorating crude demand outlook is forcing OPEC+ to consider deepening production cuts, but a wait-and-see approach won’t provide any strong reasons to become overly bullish.”
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