With the U.S. presidential election just around the corner, oil prices are trading in a tight range as investors brace for potential impacts on energy policy, international trade, and climate strategy. On Tuesday, oil prices stayed steady after a 2% rise on Monday, sparked by OPEC+’s decision to delay its planned production increase for December.

As of midday trading, Brent crude oil futures rose by 0.6% to $75.53 a barrel, while U.S. West Texas Intermediate (WTI) crude increased by 0.7% to $71.94 per barrel. However, with various key events unfolding this week, including the U.S. election, traders are playing it safe, and major moves in the oil market are expected only after clearer signals emerge.

Why the U.S. Election Matters for the Oil Market

The outcome of the U.S. election is crucial for the oil industry. The policy directions of the two leading candidates could significantly reshape global oil demand, climate policy, and U.S. energy production.

According to analysts from the French energy firm Engie Group, a win for Donald Trump could lead to shifts in global trade and influence geopolitics. Trump’s policies have historically favoured domestic oil production and a less restrictive approach to climate policy. This contrasts with the policies of his opponent, who may push for stronger climate commitments and renewable energy incentives, potentially limiting fossil fuel production.

Investors are watching closely, as the election’s outcome will likely influence everything from international oil prices to the regulatory landscape for U.S. energy producers. In the short term, however, oil prices are staying stable as traders take a cautious approach until the results are clear.

OPEC+ Decision Supports Oil Prices but Market Remains Cautious

OPEC+ – a coalition that includes the Organization of the Petroleum Exporting Countries (OPEC) and other oil-producing nations – recently decided to delay its planned increase in oil production. This move came in response to weak global demand and the rise of non-OPEC oil supply, which have been weighing on the market. The decision has provided some support for oil prices, but analysts warn that demand concerns are likely to linger.

OPEC+’s delay in production hikes is seen as a strategy to stabilize prices by reducing potential oversupply. However, the demand outlook remains uncertain, with factors like China’s economic policies and the potential for further economic slowdowns keeping many traders on the sidelines.

Other Global Events Adding to Market Uncertainty

The U.S. election isn’t the only event keeping oil traders in a “wait-and-see” mode this week. The Federal Reserve is set to hold a policy meeting, which could provide insights into the future of U.S. monetary policy and its impact on the economy. Meanwhile, China’s National People's Congress (NPC) is also meeting, and any announcements on fiscal stimulus could influence global demand for oil.

Yeap Jun Rong, a market strategist at IG, notes that this combination of events has kept risk-taking limited. “With the U.S. election, the Federal Reserve's policy meeting, and China’s NPC meeting, many traders are staying cautious. The oil market will likely remain steady until there’s more clarity from these key events,” he said.

Any uncertainty surrounding the election results, especially if there are delays or disputes, could further impact broader markets, including oil, which might see more volatility in the near term.

China's Influence: Waiting for Signals on Demand Outlook

China’s NPC meeting is drawing attention from oil traders, as many are looking for signs of fiscal stimulus that could boost oil demand in the world's largest energy consumer. However, analysts believe it’s unlikely that China will commit to strong measures until after the U.S. election results are finalized. As a result, oil prices may remain in a holding pattern, waiting for confirmation of China’s economic plans.

In the coming weeks, China’s approach to stimulus and its ongoing economic policies could provide critical signals for oil demand. If China rolls out aggressive stimulus measures, it could drive a stronger demand outlook for oil, giving prices a much-needed boost.

Short-Term Outlook: Oil Prices in a Holding Pattern

In the short term, oil prices are expected to remain stable as traders look for clearer direction from the U.S. election and other global events. The oil market is sensitive to both geopolitical and economic developments, and a decisive election outcome could set the stage for future price movements.

While a Trump win might favour domestic oil production and energy independence, a win for his opponent could mean more support for green energy policies and regulations that impact fossil fuel industries. Either way, the election’s results will likely play a crucial role in shaping the future of the oil market.

Conclusion: A Critical Week for Oil Markets and Global Trade

As the U.S. election approaches, oil markets are in a state of suspense. With OPEC+ delaying production hikes, and major events like the Federal Reserve meeting and China’s NPC gathering also on the horizon, investors are taking a cautious stance. For now, oil prices are likely to stay in a tight range as markets await the election results and other key announcements that could set the tone for the global oil industry.

Whether oil prices surge or slump in the weeks ahead depends heavily on these factors. Traders and analysts alike are keeping a close watch, ready to adapt to whatever shifts come from Washington, Beijing, and beyond.

Source: (Investing.com, Reuters)