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Post-Election Oil Prices: Can We Expect A Plunge?

On Tuesday November 8, millions of voters will head to the polls in the United States to choose who will be the next president. That figure, either business magnate Donald Trump or former Secretary of State Hilary Clinton, will need to make difficult decisions over complex issues such as national security, the economy and energy.

But until one of them is inaugurated next January, will the president-elect have any effect on oil prices? The answer is yes, but the effect will also depend on external factors aside from who becomes the victor in the race to the White House.

As noted in an analysis for S&P Global Platts, oil prices typically fall following the ascendancy of a newly elected president then go through an uptick shortly before or after inauguration on 20 January. This was the case after Bill Clinton won his first term when the price fell by from a high from a high of US$19.46 per barrel on 9 November 1992 to US$16.56 on Inauguration Day 1993. The 14.9 percent peak to trough decline was nearly erased by a 12.5 percent price increase by 1 February 1993.

A peak to valley decline was also noted after Barack Obama won in 2008 when prices dropped by 47.2 percent during an eight-week period prior to rebounding by 44.5 percent by 6 January 2009. This occurred despite the global economic crisis hurting oil prices during that period.

Similarly, the pattern repeated itself during the uncertainty with results in Florida after Election Day in 2000. Despite the race not being decided until Al Gore formally conceded on 13 December, a peak to tough drop of 37.3 percent was observed with the low price of US$21.56 occurring on 20 December. That decline was erased by 2 February 2001 with a rally of 37.7 percent.

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Oil prices on Monday have shown mixed results as West Texas Intermediate (WTI) crude rose by 0.4 percent to $44.21 per barrel in late morning trading while Brent crude slipped by 0.1 percent to US$45.53 per barrel. As indicated by Reuters, investors seem to be increasingly confident of a Clinton win on the cusp of the election. One main factor was the move by the Federal Bureau of Investigation to stick by its July decision not to raise criminal charges against Clinton over how misuse of email during her time as Secretary of State.

Related: $30 Oil Or Worse If OPEC Fails

The boost may be short-lived on multiple fronts amid the possible collapse of a deal reached in late September by the Organization of the Petroleum Exporting Countries (OPEC) to cut output in hopes of lifting prices, as well as the likely downward trends historically seen right after the presidential election process.

Despite the global supply glut and the lower-for-longer price environment, national oil production is still projected to surpass the eight million barrel per day mark for the third straight year.

Whether the same post-electoral upturn in oil prices and noted by Platts in and around Inauguration Day will depend somewhat on who will succeed Obama. As is often the case with today’s fickle markets, the oil market is moved a lot by investor confidence, and not always fundamentals.

That said, investor confidence tends to be shaken more by unknowns, and less by incumbents. And while Hillary is not an incumbent, she is certainly viewed as such more so than Trump. A Trump presidency will rattle the markets for a time, like all unknowns.

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But things are a bit different this year. The parties are more divided, people are largely motivated to vote more by who they don’t want as president rather than who they do want, and the oil market is already hanging by a thread on oversupply coupled with frustration of the markets and with all the production freeze or production cut talks.

If any election cycle were to buck the historical norms when it comes to the oil market, this is it.

Regardless of what America decides today, oil prices during the rest of this year will likely remain low, but how much the price could rebound in January and February of 2017 may be more dependent on who becomes the next US president.

By Erwin Cifuentes for Oilprice.com

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