Analysts Brace for U.S. Election Results As Oil Jumps Over 2%

Pundits think a Biden win could be beneficial for the commodity: File Image/PixaBay

Following modest increases in the S&P 500 and other U.S. stock market indices, crude on Tuesday rose by more than 2 percent - in advance of U.S. election day results that pundits say could prove to be a wild ride for the commodity.

With risk appetite said to be growing on expectations that Joe Biden will take control of the White House (and provide a large-scale coronavirus stimulus package that would be positive for oil), Brent on Tuesday rose 74 cents, or 1.9 percent, to settle at $39.71 per barrel; West Texas Intermediate  rose 85 cents, or 2.3 percent, to settle at $37.66.

Robert Yawger, director of energy futures at Mizuho Securities, remarked, "The election is dominating markets today: crude oil is up ... The general feeling seems to be that the final outcome could come as early as tomorrow."

As has become the norm, Tuesday's gains were capped by demand concerns stemming from government lockdowns in Europe against Covid spread, the latest being in Italy, Norway, and Hungary.

Contrasting these concerns was sources telling media that the Organization of the Petroleum Exporting Countries (OPEC) and Russia are considering deeper output cuts early next year to better balance the market; the cartel is scheduled to taper cuts of 7.7 million barrels per day (bpd) by around 2 million bpd from January onward.

Meanwhile, despite demand concerns and other issues related to the pandemic, the market continues to see significant mergers and acquisitions, the latest being a reverse takeover by Chrysaor of indebted Premier Oil for $1.23 billion in cash - a move that will result in an operation of around 270,000 barrels of oil equivalent per day, the British North Sea's biggest oil and gas producer.

Also, China on Tuesday said it would step up its exploration of oil and gas and speed up the construction of oil and gas storage facilities.

But the energy market remains fraught with difficulties, one case in point being Saudi Arabia's state-owned Saudi Aramco: it reported a net profit fall of 44.6 percent in the third quarter of 2020 compared to the same period last year.

Overall, Ari Wald, head of technical analysis at Oppenheimer, said energy stocks are now at their lowest point relative to the S&P 500 since 1931, and he warned that "you've got the headwind of poor seasonals that the sector has to face as well: typically November to January, the sector has been the worst performing of the 10, now 11, S&P sectors since 1990."