The largest consumer of oil in the world, the USA, has geared up for its US elections this month, and the anticipation surrounding the results has weakened the dollar.
Oil prices increased this week ahead of US elections. The Oil Producing and Exporting Countries (OPEC) had delayed plans to increase production in December after the prices had increased by 2% in the previous session. Stock market analysts are describing this as the calm before the storm.
The prices were affected by OPEC’s decision to defer production due to weak demand and the increased supply of oil from non-OPEC members, both of which had pushed the market into a depressive stage.
Brent Crude Oil futures increased by 2.2% costing US $74.42 per barrel from previously being priced at US $72.84 per barrel. West Texas Intermediate futures also witnessed a rise of 2.4% going from US $69.10 to US $70.77 per barrel. Oil production, which was expected to increase to 180,000 barrels per day from December has been halted, thus driving up prices. The largest consumer of oil in the world, the USA, has geared up for its US elections this month, and the anticipation surrounding the results has weakened the dollar. The declining dollar index against other international currencies is also a contributor to the steeping prices of oil. This weakened dollar will make the price of oil more affordable for non-dollar consumers.
The ongoing conflict between Israel, Hamas and other Middle Eastern countries has also resulted in the escalation of prices. Emerging reports also suggest Iran’s plans to attack Israel. Iran-backed Houthis in Yemen have been capturing ships to and from Israel and causing disruptions in the Red Sea, an important international maritime route. This route is necessary to conduct fuel and oil trade, where any maritime hurdles are bound to negatively impact the prices.
China’s National People’s Congress is also set to hold a meeting which will also influence the oil price. The meeting will unveil plans for a large stimulus package to help the Chinese economy back on its feet. However, this fiscal stimulus will also depend on the US election results, thus keeping the speculations of oil prices active. However, while most OPEC member nations have decided to push the increase in oil production by a month, Iran has announced that its plans to increase production by 250,000 barrels per day. According to Irani government officials this is necessary to aid the economic recovery of the country amidst the ongoing conflict in the Middle East.
Geopolitical tensions, elections and international prices are not the only reasons which will affect oil prices. A late season storm which is predicted to intensify into a hurricane is set to hit the US Gulf of Mexico this week. Oil production is set to be reduced by approximately 4 million barrels. The storm is set to hit the main oil producing areas of the USA according to the National Hurricane Centre. Energy analytics firm Earth Science Associates has predicted that oil producers are at risk of losing 3.1 million to 4.9 million barrels of oil due to the hurricane.
Along with the much-anticipated election, the US Federal Reserve meeting will also take place this week. There is widespread speculation that the meeting will end with a consecutive interest-slashing move. A similar decision was taken in the September meeting, and should the decision be reinforced, it would be an attempt to slow down inflation.
While oil producers have complained about weak demand and falling prices in recent times, they are now showing some optimism, with both Iran and Libya reverting to increase production. Along with OPEC, OPEC+ which includes countries like Iraq, Russia, Kuwait and UAE are also planning to push the increase in production to a later date. This has cast a shadow of doubt upon the oil producers and the volatile nature of the oil and natural gas markets. This uncertainty is unlikely to be resolved in the near future, given the prevalent geopolitical and economic crises.
