On November 9, 2021, oil prices gained over 2% with the Brent futures surging to surpass $40 per barrel. All that happened after Joe Biden cliched the US presidency and enhanced risk appetites. The latest market movement has offset some fears about the impact that a worsening coronavirus pandemic has on demand.
Brent crude futures for January gained $1.06, or 2.7%, to $40.51 a barrel by 0453 GMT. Also, the U.S. West Texas Intermediate (WTI) crude for December was trading at $38.21 a barrel, up by $1.07, translating to 2.9%.
Oil managed to recover from a 4% decline that happened on Friday. It surged along with many other financial markets after Biden emerged as the winner in the United States presidential race on Saturday. In the meantime, the dollar weakened which boosted commodities priced in the greenback since they became more affordable for the investors who hold other currencies.
The chief market strategist at CMC Markets in Sydney, Michael McCarthy, commented:
“Trading this morning has a risk-on flavor, reflecting increasing confidence that Joe Biden will occupy the White House, but the Republican Party will retain control of the Senate. The outcome is ideal from a market point of view. Neither party controls the Congress, so both trade wars and higher taxes are largely off the agenda.”
US President-elect Biden together with his team is working hard to come up with viable ways to combat the worsening pandemic. The US became the first country globally since the pandemic hit to surpass 10 million infections, according to the latest data.
OCBC’s economist Howie Lee believes that there will be some repercussions once Joe Biden takes over power fully. Lee thinks that there might be a possibility of lockdowns in the United States under the new president. He said:
“Either you’re crimping energy demand or consumption behavior.”
On a separate note, US oil production will increase significantly as producers continue tapping into a backlog of multiple drilled wells left uncompleted to enhance output. The cumulative number of operational oil and gas rigs in the US surged for an eighth week last week, based on reports by Baker Hughes.
Main members of the Organization of the Petroleum Exporting Countries (OPEC) are worried that Biden might relax measures on Venezuela or Iran in the coming years. That move would result in an increase in production that might make it more challenging to balance supply and demand.
ING analysts believe that the return of Iranian oil supply might happen by the end of 2021 or in early 2022. OPEC+ are currently cutting their output by almost 7.7 million barrels daily to balance the state of the global oil markets.
The world’s biggest crude importer, China, posted about a 12% decline in October imports compared to what it imported in September. That data might be bearish for the global commodity markets according to OCBC’s Lee:
“China might be near the end of what it needs in the raw commodity form given the amount of stockpiles that it has.”
Some analysts and commentators anticipate that imports will rise into 2021 after China increased quotas by 20%.