Oil prices fell for the fourth day in a row, on Thursday, amid expectations that the losses incurred by the Republican Party, to which US President Donald Trump belongs, in this week’s congressional elections will limit the possibilities of escalation of the US-Israeli war on Iran.
Brent crude futures fell 80 cents, or 0.85 percent, to $93.82 per barrel, by 04:26 GMT, while US West Texas Intermediate crude futures fell $1.20, or 1.36 percent, to $86.92.
The two benchmarks fell by more than 8 percent during the previous session, recording their lowest levels since August 31.
Two sources familiar with Gulf government circles said on Wednesday that Trump, whose position has become weaker in the face of a Congress that may be controlled by Democrats and be able to restrict his military options, now has a greater incentive to reach an agreement, adding that launching a large-scale attack on Iran has become less likely.
A settlement to the dispute would allow the restoration of oil flows from regions of the Middle East affected by the war, although analysts warn that the path of developments remains unclear.
“Markets are evaluating the impact of the midterm elections on the next steps that Donald Trump might take regarding the war with Iran, and pricing in greater possibilities for the war to end,” said June Go, senior oil analyst at Sparta Commodities.
She added that the markets will witness more volatility, in light of the continued uncertainty about the path towards reaching a diplomatic settlement that ends the war, in addition to the sharp decline in global strategic reserves.
In a development on the supply front, oil shipments through the Strait of Hormuz, the main waterway for most Gulf oil supplies, have returned to levels approaching those recorded before the war, according to analysts, albeit at higher costs.
The JPMorgan group said in a note on Wednesday that the resumption of supply flows from the Gulf returned the global oil market to record surplus, after months of turmoil resulting from the war.
The group estimated that the market returned to a surplus of 1.1 million barrels per day in September, which expanded to 1.4 million barrels per day in October, approaching the average surplus recorded last year of 1.3 million barrels per day.
However, uncertainty remains before the Democratic-majority Congress takes office next January.
The Citigroup said in a note on Thursday that there are concerns that the White House, after the end of the midterm elections, will focus on using its executive powers in foreign policy, which could open the way for a new escalation in the confrontation with Iran.
For its part, the Eurasia Group reduced its estimates of the possibility of resuming US strikes on Iran to 60 percent, from 65 percent, but it also reduced the probability of reaching an agreement to 10 percent, from 20 percent, in light of Iran’s adherence to its demands, and ruling out Trump’s acceptance of conditions that might be interpreted as a defeat.
On the other hand, the group raised its estimate of the possibility of the confrontation continuing without a resolution to 30 percent, compared to 15 percent previously.
Eurasia said that any escalation, despite the recent decline in oil prices, could push Brent crude to rise more sharply, to range between $110 and $125 per barrel.
In turn, Mukesh Sahdev, CEO of X Analysts, a consulting firm in the energy sector, said that commercial oil reserves in major consuming economies are approaching their lowest levels in 15 years, warning that the results of the US elections may further harden the Iranian position.
In the United States, inventories of crude oil, gasoline, and distillates declined over the past week, coinciding with a rise in demand to its highest levels in a year, according to US Energy Information Administration data issued on Wednesday.
US stocks rose strongly in Wednesday's trading, as investors tried to identify the companies and sectors that benefited from and were affected by the significant losses suffered by the Republican Party in the midterm elections, and the changes that the results may impose on the economic and trade policies of the administration of President Donald Trump.
The Standard & Poor's 500 Index jumped 1.1 percent in early trading, heading towards recording its best daily performance in six weeks, while the Dow Jones Industrial Average rose 983 points, and the Nasdaq Composite Index rose 1.7 percent. In the bond market, US Treasury bond yields declined.
The performance of stocks varies according to the implications of the electoral results for companies. Shares of First Solar, which operates in the field of solar energy, jumped, while companies linked to Trump ally Elon Musk were under pressure, with SpaceX shares falling by 5.8 percent to their lowest levels since August, and Tesla shares falling by 5.1 percent in early trading.
The shares of “Trump Media”, the parent company of the US President’s social media platform, also fell by 11 percent, recording its largest decline since August 10, in a reflection of the varying reaction of investors towards companies linked to the US administration and its allies.
The gains came after the elections produced a Democratic majority in both chambers of Congress, in a result that paves the way for a new phase of legislative resistance to Trump's program, which he has sought to implement intensively since his return to the White House.
Investors believe that the division of control over Washington between the Republican and Democratic parties may not be a negative thing for the markets, as it reduces the possibility of passing broad policy changes that may confuse the economy or affect the performance of companies.
Stephen Brown of Capital Economics said that the size of the gains achieved by the Democrats does not change much of the expectations related to policies in the near term, because the party still lacks a majority in the Senate capable of overcoming the legislative obstruction, while Trump retains the power to veto laws.
However, the implications of the results remain mixed across sectors. Some Asian markets fell briefly amid concerns that the rise of Democrats will slow the expansion of artificial intelligence projects, due to tightening safety considerations and local community resistance to the establishment of data centers. This comes at a time when investors are wondering whether the significant rises recorded in shares of artificial intelligence companies reflect a sustainable boom or bubble in the sector.
In futures trading before the opening of Wall Street, Dow Jones contracts rose by 1.4 percent, and Standard & Poor's 500 contracts rose by 1 percent, while Nasdaq contracts compensated for part of its previous losses related to artificial intelligence stocks, rising by 0.54 percent.
On the other hand, shares of wind energy companies rose, while shares of defense industries companies came under pressure, amid expectations that political developments will reduce the intensity of the war with Iran, which may limit the expected demand for defense products and services.
The political and economic picture is still open to multiple possibilities, as Trump retains broad executive powers in key files, including defense, foreign policy, and some aspects of trade.
