Oil prices slipped more than 1% on Wednesday as the dollar surged on bets that Republican Donald Trump could win the Presidential elections.
However, the contest remains too close to call, according to reports.
A stronger dollar makes commodities such as oil more expensive for overseas buyers.
This limits demand and drags down prices.
At the time of writing, the price of West Texas Intermediate crude oil was down 1.5% at $70.93 per barrel.
Brent crude on the Intercontinental Exchange was $74.39 per barrel, down 1.5%.
US election results in focus
Trump is currently leading all seven swing states after his victory in North Carolina has already been announced.
If the lead turns into a definite win, Trump is likely to become the next US President.
The initial signs have all indicated a Trump win, which is pressuring the oil market as both yields and the dollar has risen sharply.
“Oil will likely be vulnerable to broader moves in markets as we get more clarity on how the US election plays out,” ING Group’s analysts said in a note.
Even as oil prices are lower on Wednesday, a Trump win could provide short-term support to the commodity, according to analysts.
Warren Patterson, head of commodities strategy at ING Group said:
For oil fundamentals, a Trump victory could provide some short-term upside with the risk of stricter sanction enforcement against Iran.
Trump win could be bearish in long-term
However, the scenario could be very different in the longer run if Trump takes office at the White House for the second time.
Trump’s policies support more drilling of oil and gas on US federal lands. He has also been vocal about his support for oil producers in the country.
The US is the largest oil producer in the world.
Also, experts believe that Trump could ease sanctions on Russian oil supply at the expense of a peace deal with Ukraine.
This is likely to increase supply and normalise a lot of oil supply coming out of Russia, one of the top producers of oil.
Patterson noted:
In the medium to longer term, a Trump victory could be more bearish for oil due to trade and foreign policy.
Meanwhile, a Harris victory would likely keep the status quo.
US stocks rise
Meanwhile, the American Petroleum Institute reported late on Tuesday that oil stockpiles in the US rose by 3.13 million barrels in the week ended November 1.
A poll conducted by Reuters had projected inventories in the US to rise by 1.1 million barrels last week.
The massive build up in stocks further pressured oil prices on Wednesday.
However, the report showed that gasoline inventories fell by 928,000 barrels, largely in line with the Reuters poll.
Additionally, distillate stocks fell 852,000 barrels.
The official weekly report by the US Energy Information Administration will be released later on Wednesday.
Tropical storm Rafael in focus
Tropical Storm Rafael, which barrels towards the US Gulf of Mexico could disrupt oil supplies from the region.
According to a Reuters report, Rafael could become a category 2 hurricane, disrupting about 4 million barrels of US oil production this week.
Major US oil and gas companies have already taken precautionary measures, shutting down facilities.
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