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Oil Prices Rise as Investors Eye US Election Fallout

FILE PHOTO: Oil pump jacks are seen at the Vaca Muerta shale oil and gas deposit in the Patagonian province of Neuquen, Argentina, January 21, 2019. REUTERS/Agustin Marcarian/File Photo
FILE PHOTO: Oil pump jacks are seen at the Vaca Muerta shale oil and gas deposit in the Patagonian province of Neuquen, Argentina, January 21, 2019. REUTERS/Agustin Marcarian/File Photo
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Oil Prices Rise as Investors Eye US Election Fallout

FILE PHOTO: Oil pump jacks are seen at the Vaca Muerta shale oil and gas deposit in the Patagonian province of Neuquen, Argentina, January 21, 2019. REUTERS/Agustin Marcarian/File Photo
FILE PHOTO: Oil pump jacks are seen at the Vaca Muerta shale oil and gas deposit in the Patagonian province of Neuquen, Argentina, January 21, 2019. REUTERS/Agustin Marcarian/File Photo

Oil prices rose on Thursday following a sell-off triggered by the US presidential election, as risks to oil supply from a Trump presidency and a hurricane building in the Gulf Coast outweighed a stronger US dollar and higher inventories.
Brent crude oil futures were up 65 cents, or 0.87%, at $75.57 per barrel by 0400 GMT. US West Texas Intermediate (WTI) crude gained 54 cents or 0.75% to $72.23, Reuters said.
Concerns around a Trump presidency squeezing oil supply from Iran and Venezuela as well as an approaching storm "more than offset the post-election impact of a stronger US dollar and ... higher-than-expected US inventories," Tony Sycamore, a market analyst with IG, wrote in a note.
Trump's election had initially triggered a sell-off that pushed oil prices down by more than $2 as the US dollar rose to its highest level since September 2022. But the front-month contracts pared losses to settle down 61 cents for Brent and 30 cents for WTI by the end of the Wednesday session.
"Historically, Trump's policies have been pro-business, which likely supports overall economic growth and increases demand for fuel. However, any interference in the Fed's easing policies could lead to further challenges for the oil market," said Priyanka Sachdeva, senior market analyst at Phillip Nova.
"With the bumper surge in the dollar hovering at near 4-month highs, oil seems to be talking massive headwinds in the aftermath of the US election results."
The upside to oil markets may be limited to the short to medium term as OPEC is expected to increase supply capacity in January, while historical trends do not suggest sanctions will prevent India and China from continuing to purchase oil from Russia or Iran, Sachdeva said.
Donald Trump is expected to reimpose his "maximum pressure policy" of sanctions on Iranian oil. That could cut supply by as much as 1 million barrels per day, according to an Energy Aspect estimate.
Trump in his first term had also put in place harsher sanctions on Venezuelan oil, measures that were briefly rolled back by the Biden administration but later reinstated.
In North America, Hurricane Rafael intensified into a category 3 hurricane on Wednesday, and about 17% of crude oil production or 304,418 barrels per day in the US Gulf of Mexico had been shut in response, the US Bureau of Safety and Environmental Enforcement said.
US crude inventories rose by 2.1 million barrels to 427.7 million barrels in the week ending on Nov. 1, the US Energy Information Administration said on Wednesday, compared with expectations for a 1.1 million-barrel rise.

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How Will Anticipated US Interest Rate Cut Impact Gulf Economies?

Standard & Poor’s analysts said that lower interest rates should boost Gulf non-oil economies. (Photo: Reuters)
Standard & Poor’s analysts said that lower interest rates should boost Gulf non-oil economies. (Photo: Reuters)
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How Will Anticipated US Interest Rate Cut Impact Gulf Economies?

Standard & Poor’s analysts said that lower interest rates should boost Gulf non-oil economies. (Photo: Reuters)
Standard & Poor’s analysts said that lower interest rates should boost Gulf non-oil economies. (Photo: Reuters)

The US Federal Reserve is expected to reduce interest rates again at its upcoming meeting, a decision anticipated to affect Gulf economies and their banking sectors.

The Federal Open Market Committee plans to meet for two days starting Wednesday, and market forecasts suggest a rate cut of 25 basis points. This adjustment is likely to prompt similar reductions by Gulf central banks, whose currencies are pegged to the US dollar, with the exception of Kuwait, which follows a currency basket.

Sovereign analyst at Standard & Poor’s Zahabiya Gupta said that lower interest rates should boost Gulf non-oil economies by supporting demand for credit and sectors like real estate and construction.

“We expect average growth of 3.3% in the Gulf from 2024 to 2027, compared to 1% in 2023, supported by strong non-oil activity and increased oil production,” she remarked.

Gupta added that monetary easing should also help reduce debt service costs for governments, especially those with high borrowing needs, like Saudi Arabia in absolute terms and Bahrain as a percentage of GDP. Inflation rates are expected to remain relatively low, given managed prices on many goods and the relatively strong dollar peg.

For his part, Credit analyst Dr. Mohamed Damak from Standard & Poor’s told Asharq Al-Awsat that Gulf banks’ profitability is expected to remain strong in 2024, buoyed by a delay in rate cuts, resilient asset quality, supportive economies, limited leverage, and high precautionary reserves.

“We expect a slight deterioration in profitability in 2025 as the Fed continues cutting rates, with a total anticipated decrease of 225 basis points, including the 50 basis point cut made in September 2024, which Gulf central banks are likely to follow,” he stated.

Yet, lower rates may also lessen unrealized losses Gulf banks have accumulated over the past two years, which are estimated at about $2.8 billion, or approximately 1.9% of shareholder equity, he underlined.

The negative impact of rate cuts may be partially offset by several factors, Damak explained, saying that Gulf banks can mitigate these effects through strategic balance sheet adjustments, such as locking in current rates or switching from variable to fixed rates. Another factor includes the potential shift of deposits back to non-interest-bearing instruments, reversing the trend of recent years when deposits moved to interest-bearing accounts due to rising rates.

Lower rates could also reduce banks’ risk costs, as companies may find it easier to meet their debt obligations, improving creditworthiness and lowering the need for banks to set aside provisions. Additionally, accelerated loan growth could help counterbalance lower margins, especially in high-demand markets like Saudi Arabia, driven by large-scale Vision 2030 projects.

Damak noted that the impact of lower rates on liquidity levels would likely be neutral overall, with an expected reduction in unrealized losses within Gulf banks’ investment portfolios, albeit by a modest amount ($2.8 billion by the end of 2023). Lower rates might also encourage Gulf banks to tap international capital markets more actively, especially in countries needing extra liquidity to stimulate loan growth, such as Saudi Arabia.