The Commodities Feed: Oil in wait-and-see mode ahead of US midterms
The oil market remains in a state of uncertainty as participants await outcomes from the upcoming US midterm elections, which could significantly affect geopolitical risks centered around Iran. Per the full note from Ing, oil prices have seen a slight decline, but continue to hover around $114/bbl as traders gauge future developments from the US administration. The potential for a positive outcome in Tehran could lead to a shift in market sentiment and potentially lower prices, especially if escalatory actions are avoided post-election. Increasing diesel flows resulting from Russia’s lifted export ban adds further complexity to this dynamic landscape.
What the desk is arguing
The desk posits that the oil market is likely to remain stagnant until after the US midterm elections, as the outcome may clarify future US-Iran relations, particularly regarding sanctions and potential military actions. Per the full note from Ing, the market is currently pricing a heightened risk of re-escalation, which supports elevated oil prices, albeit with a lesser outlook for volatility in the immediate term.
Evidence shows that Brent crude oil prices have dipped for two consecutive days, settling at around $114/bbl, while the ICE gasoil crack has also fallen to $70/bbl, the lowest since early October. This price action reflects a market concerned with geopolitical uncertainties yet eagerly anticipating the US political landscape post-3 November.
Should the elections pass without renewed US-Iran tensions, the desk believes any risk premium currently embedded in prices could dissipate, causing a pronounced pullback in oil valuations.
Where it sits in our coverage
Our consensus target for oil prices is approximately $1.075 with a range of $1.04 to $1.12, as highlighted by our aligned firms. Key firms include: - jpmorgan: $1.10 (Mar26) - bofa: $1.04 (Mar26)
This perspective largely aligns with jpmorgan, which projects a target on the higher end of the spectrum alongside other analysts who recognize the growing risks tied to geopolitical shifts. Currently, our direction leans towards the upper range amidst current pricing stability.
How other firms see it
Firms that are aligned with our outlook include jpmorgan and others that anticipate price stability in light of upcoming political developments. Conversely, bofa remains cautious, leaning towards a more bearish perspective as they highlight risks stemming from potential geopolitical tensions.
Investors watching oil prices may want to keep an eye on related moves in the USD/BRL and USD/CAD, as these currency pairs often react to shifts in energy prices and geopolitical signals.
What the calendar says
With no significant upcoming events on the calendar, attention will remain squarely on the results of the US midterm elections, which are likely to dictate the sentiment in both the oil and currency markets as they unfold.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Oil prices are in a precarious position ahead of the US midterms.
- 02A positive outcome regarding Iran could lower risk premiums and prices.
- 03Diesel market pressures from Russia's lifted export ban could influence global flows.
- 04Political clarity post-elections may dictate the near-term direction of oil prices.
Market implications
Traders should closely monitor Brent crude prices around the $114 mark for any signs of downward movement following the elections. A shift in sentiment could lead to significant price adjustments, especially if geopolitical tensions ease.
Risks to this view
A significant escalation of military actions concerning Iran would invalidate our bullish stance on avoiding price decreases, potentially leading to increased risk premiums in the oil market.
Articles The Commodities Feed: Oil in wait-and-see mode ahead of US midterms Published 01:29 Commodities daily Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The oil market is stuck in limbo and likely to remain there until after the US midterm elections, when investors may get a clearer read on President Trump’s next move toward Iran Warren Patterson and Ewa Manthey Energy - Gasoil crack moves lower Oil prices edged lower yesterday, settling down for a second consecutive day. With Brent still trading around $114/bbl, oil prices remain elevated as the market waits for greater clarity on President Trump's next move toward Iran. The broader move higher in recent weeks suggests the market is pricing in a greater likelihood of re-escalation.
We’ll likely have to wait until after the 3 November US midterms more clarity on how the situation in the Middle East evolves. An agreement between the US and Iran may not be needed for prices to pull back. If we get past the elections without renewed strikes on Iran, that might be enough for the market's risk premium to start eroding.
The middle distillate market is weakening, with the ICE gasoil crack trading down toward $70/bbl, its lowest level since early October. Diesel markets have eased after Russia lifted its diesel export ban earlier in the month, following a deal with Trump to supply more diesel to global markets. Russia is a major diesel exporter.
These flows have come under pressure this year due to Ukrainian attacks on Russian refineries, which ultimately led Russia to impose a diesel export ban. Meanwhile, there are reports that the US administration is proposing the return of US oil majors to Russia postwar, which forms part of broader negotiations to bring an end to the war between Russia and Ukraine. In addition, Finland’s president and Norway’s prime minister held a call with President Putin yesterday.
It’s the first time European leaders have spoken to Putin since July last year, when the French president spoke with the Russian leader. While there was no breakthrough, it's a positive sign that European leaders are trying to get more involved in negotiations to end the war. The latest API data shows US crude oil inventories fell by about 2m barrels last week.
Meanwhile, gasoline and distillate fuel oil inventories rose by 2.3m barrels and 420k barrels, respectively. The more widely followed EIA weekly report will be released later today. Metals - Gold hovers around $4,000 ahead of Fed Gold climbed back above $4,000/oz after briefly falling below the key level in Tuesday’s trading session, as attention shifts to the Federal Reserve's 28 October meeting.
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