Oil edges higher as market recovers from Donald Trump victory shock

However, traders maintain that crude fundamentals are still weak


International Brent crude oil futures on Thursday were trading at $46.70 per barrel, up 34 cents, or 0.7%, from their last close. A file photo: Bloomberg
International Brent crude oil futures on Thursday were trading at $46.70 per barrel, up 34 cents, or 0.7%, from their last close. A file photo: Bloomberg

Singapore: Oil prices reversed some early losses to push higher on Thursday as markets recovered from their initial shock at US president-elect Donald Trump’s surprise victory, although traders said that crude fundamentals remained weak.

Trump’s election win initially stunned markets and led Ian Bremmer, president of US risk consultancy Eurasia Group, to warn that “the world is heading into a profound geopolitical recession.”

However, markets shook off deep post-election losses and recovered on Thursday.

“After initially selling off as it became clear Donald Trump would be the next president, commodity prices rallied strongly as the flight to safety unwound,” ANZ bank said on Thursday in a note on Trump’s victory.

But the bank added that “there are still serious questions marks as to what it means for commodity markets.”

US West Texas Intermediate (WTI) crude futures were up 15 cents, or 0.3%, from their last settlement at $45.42 a barrel at 6.26am GMT.

WTI was held back somewhat by a 2.4 million barrels rise in US crude inventories to 485 million barrels last week, even though refineries hiked output and imports fell, the US Energy Information Administration said on Wednesday.

International Brent crude oil futures were trading at $46.70 per barrel, up 34 cents, or 0.7%, from their last close.

BMI Research said Trump’s expected pro oil and gas industry policies might mean that US “production of oil and gas could recover at a faster rate in 2017 as developers grow more encouraged.”

Goldman Sachs said a Trump presidency would likely result in higher investment and, in time, increased US oil output as the new president-elect has said he would de-regulate fossil fuel production.

Internationally, the bank said Trump’s threat of renewed US sanctions against OPEC-member Iran would, in the short-term, lead to higher production as it “would further incentivise Iran to maximize production in the short term rather than comply to an OPEC freeze.”

This confirmed traders’ doubts over the ability of the Organization of the Petroleum Exporting Countries (OPEC) and other producers, especially Russia, to coordinate a planned output cut in order to prop up prices.

“The outcome of the US election adds to the challenges for the oil exporters because it will likely lead to weaker economic growth in an already fragile global economy. And that means additional pressure on oil demand,” said Daniel Yergin, vice-chairman of the IHS Markit think tank.

In physical oil markets, the Niger Delta Avengers (NDA) militant group said it had attacked the Forcados crude export line operated by oil major Royal Dutch Shell.

Shell said that it had also shut down an Escravos crude oil flow station in Nigeria’s Niger Delta after villagers staged a protest demanding aid. Reuters

READ MORE