Oil prices have recovered since Donald Trump’s surprise US election win sent prices down on Wednesday.
US West Texas Intermediate (WTI) futures (Dec’16) were trading at $45.14 per barrel at 0923 GMT, up $2.00 from Wednesday’s low of $43.35.
The initial market shock, which began on Wednesday when it was apparent Trump had won the general election, prompted Ian Bremmer, president of risk consultancy Eurasia Group, to say that the “world is heading into a profound geopolitical recession.”
But markets quickly recovered their losses – with the FTSE and Dow Jones Industrial Average ending Thursday’s trading session higher. Oil markets have also recovered.
However, investors are still cautious about what lies ahead.
Later this month the Organisation of the Petroleum Exporting Countries will decide on production output. Oil prices may fall amid “relentless global supply growth” unless OPEC drops oil output.
Carsten Fritsch, senior oil and commodities analyst at Commerzbank in Frankfurt, told Reuters:
“It all depends on the upcoming OPEC meeting… We are still in an oversupplied market and that is not going to change for the foreseeable future unless OPEC cuts.”
What does a Trump presidency mean for oil?
Donald Trump has expressed a desire to open up federal lands for energy production and free up offshore areas to development. He has also threatened to renew American sanctions against OPEC-member Iran, which could lead to higher production, Goldman Sachs forecasts, as it “would further incentivise Iran to maximise production in the short term rather than comply to an OPEC freeze”.
“There is still a lot of uncertainty,” Toby Lawson, head of global markets for Australia at Societe Generale SA, said in a Bloomberg television interview.
“We’ve got a bit of time to go through, to get some certainty around what the actual policies are but the direction indicates quite clearly that a Trump administration will be looking to fiscal policy to drive growth.”
“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, said.