BAKU, Azerbaijan, Nov.9
By Leman Zeynalova – Trend:
Democratic administration in the US will likely accelerate the energy transition, which many states have already been pursuing for some time now, Trend reports with reference to JP Morgan Bank.
“A total of 23 states have greenhouse gas reduction targets with several, including most recently Michigan, setting net-zero goals. The negative impact of these policies on oil demand is much more of a long-term structural shift and will likely be felt beyond the next presidential term. Though, a divided Congress now shelves significant infrastructure spending in the US in the next few years. We have not baked in any US demand boost on the back of infrastructure spending though, viewing the ongoing recovery from COVID-19 related destruction as the primary driver for demand over the next year.
“While most energy market participants braced for a potentially volatile week in the crude market as a result of the US presidential election, quiet calm appears to be the more descriptive phrase for the front month futures contract: price moved within a relatively narrow range— between $39.50/bbl and $41/bbl. Where participants appear to be feeling the repercussions of election’s uncertainty is within the options market with the subdued tone of price overnight likely triggering an unwinding of any defensive strategies put in place prior to the election.
“This fairly uneventful market period for flat price in the near-term can be viewed as somewhat surprising, in fact, we continue to believe the prompt futures crude contract will have moments of significant volatility in price should uncertainty continue to increase regarding timing of a resolution for the election outcome. However, we want to stress our belief that front-month price movement in the near-term as a result of macro risk factors, such as the US dollar, is not strong enough to overcome the boundaries of fundamentals, such as OPEC+ strategy, burgeoning global storage levels, and Covid-19 related demand implications, which are tightly wrapped around crude market price.
“Within the noise of the election, we believe market participants are carefully watching for any signs of deteriorating demand fundamentals. For example, Tuesday’s headlines that OPEC and Russia are studying deeper cuts as one of the options to address weaker oil markets as well as Tuesday afternoon’s surprisingly strong withdrawal estimate by API—that was confirmed on Wednesday by DOE—manifested in some price support at the front of the forward curve in both cases. Thus, we caution conflating any near-term price moves as solely election-based; though we fully acknowledge that the absorption of the election outcome by the market could prove to be volatile for price. We have been quite adamant that supply and demand fundamentals are likely the best harbingers for 2021 price trajectory,” the Bank said.
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