The Commodities Feed: Oil plunges following US midterm elections

Oil prices plummeted following the US midterm elections, settling 8.7% lower on ICE Brent and below $95/bbl. The election results saw Democrats win both the House and Senate, increasing optimism that a quicker end to the war in Iran could be achieved. With control of Congress, Democrats may scrutinize the war and make it more challenging to fund.

This could lead to Republican pushback, but President Trump may still escalate the situation if he wishes to. However, new senators and House members begin in January, giving Trump less time to act. The uncertainty surrounding the impact of the election on the oil market has led some to believe the selling could be exaggerated. Nonetheless, the risk premium in the oil market seems to be disappearing, and oil flows from the Persian Gulf remain stable.

Additionally, US commercial crude oil inventories fell by 865k barrels in the last week, while strategic reserve releases decreased inventories by 1.26m barrels. Refined product inventories, especially for middle distillates, also dropped, bringing total distillate stocks below 100m barrels for the first time since 2003. European gas prices fell due to hopes that the election outcome would lead to a quicker recovery in LNG flows, with TTF trading around EUR85/MWh.

Despite the rebound, the outlook for gold remains challenging, with inflation concerns supporting expectations for tighter monetary policy. Central bank buying continues to provide support, with official-sector demand remaining strong in September. Poland and China led official purchases, reinforcing the structural demand story for gold.

However, the near-term outlook for gold depends on developments in the Middle East and its impact on energy markets.