Crude oil prices slumped nearly 3% on Wednesday, with market sentiment heavily influenced by the outcome of the US presidential election. Former President Donald Trump’s victory sent shockwaves through the oil markets, signaling potential changes to US energy policy. As Trump takes office for a new term, his promises to ramp up domestic drilling and boost oil production could tip the delicate balance between supply and demand, contributing to lower oil prices in the near future.
Trump’s Election Impact on Crude Oil
Trump’s commitment to expanding oil drilling in the US has raised concerns about an increase in supply, which could push oil prices down. Analysts believe that a surge in domestic production would exacerbate the global supply glut, further depressing prices that are already under pressure. On Wednesday, crude oil prices continued their downward trajectory as the markets digested the political news.
Adding to the negative sentiment, Tropical Storm Rafael, which has the potential to impact key oil rigs in the US Gulf, faded into the background. Although the storm’s potential to disrupt production was a concern earlier, the market’s focus shifted quickly to the political landscape and its potential long-term implications for oil supply and prices.
US Dollar Strengthens as Republicans Gain Power
In tandem with crude oil’s slide, the US Dollar Index (DXY) rallied nearly 2% on Wednesday. Trump’s victory, coupled with the possibility of Republican control over the House of Representatives and Senate, sparked optimism in financial markets. With more control over the legislative process, Trump’s administration may be able to push through oil-friendly policies with minimal opposition, boosting the greenback’s value as a result.
The rally in the USD also reflects broader investor confidence in Trump’s ability to pass economic reforms and tariffs with a Republican-majority Congress. This political shift has added further pressure on crude oil prices, as a stronger dollar makes oil more expensive for international buyers.
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Market Fundamentals and Technical Outlook
While political factors continue to influence the market, oil production levels are also a critical factor. Data from Russia indicates that crude production in October remained in line with targets under the OPEC+ agreement. Meanwhile, Saudi Arabia’s decision to lower oil prices for buyers in Asia in December, following OPEC+ production cuts, signals ongoing concerns about demand.
Technical analysis suggests that oil prices face significant resistance at the $74.30 level, marked by the 100-day Simple Moving Average (SMA). Further upside will depend on geopolitical tensions in the Middle East or other supply disruptions. On the downside, $67.12 is a critical support level to watch, as it acted as a floor for prices in mid-2023. If breached, crude oil could test the 2024 low of $64.75, signaling further bearish momentum
