How US midterms could affect oil prices?

00:00:00: Today has come, ladies and gentlemen.

00:00:02: Americans had to oppose for the midterm elections.

00:00:05: The latter could have a material impact on global financial markets.

00:00:09: So yesterday we discussed about how the elections could impact the AI trade And today We will talk about How the election Could reshape oil prices By influencing expectations For conflict with Iran.

00:00:23: So, welcome to SWISCO's daily market talk.

00:00:26: It is the third of November, twenty-sixth.

00:00:29: I'm Ipeco Skardishkeya.

00:00:30: again today we will talk about how political decisions in the US could impact market prices across the globe.

00:00:37: but before Please keep in mind that this is not a political show, I won't express any political opinion nor any political preference.

00:00:46: The content is for information purposes only and it's based solely on my own opinions and analysis!

00:00:53: Cheers.

00:01:02: So the week started on a slight improvement for all else than technology, as oil prices fell sharply on Monday's trading session.

00:01:10: On a report saying that Trump is willing to give diplomacy more time.

00:01:16: Nice worth what is worse, but US crude tank more than six and a half percent in yesterday's trading session to below ninety-six dollars per barrel level at one point.

00:01:26: Brands crude fell eight percent to one hundred three dollar per barrel levels And the latter helped pulling the yields lower across the globe and supported equity valuations Across global financial markets again.

00:01:38: The technology sucks couldn't benefit from yesterday's rebound as AI worries especially regarding the huge spending out weighted lower oil prices again.

00:01:48: Of course, upside risk in oil markets prevailed as there has not been a concrete material progress.

00:02:03: As we seek the next stop in oil prices, We must look at factors that could have a material impact on the trajectory of oil markets.

00:02:12: So yesterday we talked about how US mid-term elections and how U.S.

00:02:17: mid term election results can impact the AR trade.

00:02:20: And today we will learn what kind of impact mid term results has on global energy prices.

00:02:26: Here The main transmission channel is conflict with Iran obviously as not much was expected to change regarding the US oil production policy.

00:02:34: So investors will be parsing what upcoming midterm election results we'll mean for the administration's next move in the Middle East with Iran, duration of supply disruptions and the geopolitical premium embedded.

00:02:48: If you go by scenario analysis, if Democrats gained control of one or both chambers in today's midterms they could increase the cruelty of the administration handling of war use their influence over spending to challenge additional military funding and hence increased pressure for a diplomatic solution once new congress takes office on January onwards.

00:03:09: IF ON TOP The result is followed by credible negotiations and prospects of safer shipping through the Strait of Hormes that created oil prices for sustainably.

00:03:19: Even Mosul, as Bloomberg reports that, Gulf Arab countries already start exporting close to their pre-war levels.

00:03:26: That means the supply is being restored.

00:03:29: if diplomatic progress reduced just before further supply disruptions spot and near term crude prices could fall faster than longer dated futures narrowing the backwardation of the premium for immediate supply eases.

00:03:43: Now this would be the sweetest case scenario in the world economy obviously.

00:03:47: Unfortunately though, a democratic victory would not automatically end the conflict in Iran because US President was still retained considerable say on foreign policy and what's going with Iran.

00:04:00: And weaker Republican position wouldn't automatically mean a lower geopolitical risk premium but higher pressure for a diplomatic resolution.

00:04:09: And when we have a higher pressure, for a Diplomatic Resolution where you could see oil prices come under pressure and that would be good outcome for global markets!

00:04:18: If Republicans retain control of Congress however the US administration will face fewer political obstacles.

00:04:25: The geopolitical stalemate in the Middle East could persist while at end of election campaign in the U.S.

00:04:31: could reduce immediate political urgency to bring these energies prices down.

00:04:36: So if temporary measures that were introduced to ease pressure on energy prices before the midterm elections are allowed to expire or are scaled back in the coming months, that could add some upward pressure on US gas prices in a short run and higher energy prices would strengthen the case for further monetary policy tightening from the Fed as they will boost inflation and inflation expectations but also for major central banks across the globe today the Reserve Bank of Australia And overall, if you take a step back and look at the bigger picture.

00:05:25: The latest monetary policy decisions either brought rate hikes or possibility of tighter monetary policies to fight rising global inflation due to globally elevated energy prices, On top, many developed market bond yields rose due to intensifying fiscal concerns but also due a big-big issuance of bonds from technology companies the hyper scalers to finance their massive AI build out.

00:05:52: Alphabet for example sold six billion euros worth of bonds yesterday adding to nine billion euros it already raised across six trenches in May.

00:06:02: The springs is totally euro denominated issuances this year to fifteen billion euros making it the biggest corporate issuer in a single calendar year, according to data compiled by Bloomberg.

00:06:15: overtaking Amazon's fourteen and a half billion euro raise in March.

00:06:20: And together, Alphabet & Amazon have now raised to a nine-and-a-half billion in euros, nine point seventy five billion in Stirling, five point eighty-five billion in Swiss francs twenty two and a Half billion in Canadian dollars Five hundred seventy six and a halve billion in Japanese yen and five point six billion Australian Dollars this year.

00:06:41: if these numbers don't make sense alone the scale is.

00:06:45: According to the European Central Bank, US big technology accounted for almost one in every ten euros raised through euro-denominated nonfinancial corporate bonds this year.

00:06:57: That's ten percent of gross euro denominated bond issuance by no financial companies based on data though August hence applying further pressure on sovereign yields.

00:07:07: obviously that then rippled through the broader economy.

00:07:10: So in this complicated environment of higher and rising yields, currencies or economies that print strong wealth ways show investors they could well tolerate higher borrowing costs along with higher energy prices, tariffs on other geopolitical attentions would outperform the currency of economies which struggle under the rising pressure.

00:07:32: elevated energy prices, and tighter financial conditions.

00:07:36: So following this reasoning the US dollar could gain more ground against most majors.

00:07:40: And if the U?

00:07:41: S dollar continues to surf on higher real rates boosted by robust growth prospects after United States is stronger u s dollar would then add additional pressure By making crude more expensive for buyers using other currencies and that will potentially destroy global demand and limit cruise upside potential regardless of the us midterm election results.

00:08:02: So in summary, the clearest downside scenario for crude oil is credible de-escalation of the geopolitical tensions followed by improved supply flows obviously.

00:08:12: The clearest upside scenario is renewed disruption and the strait of homes while inventories continue absorbing shortfall.

00:08:18: The US midterm elections could change expectations rapidly, but they cannot by themselves reopen shipping roads or repair damaged infrastructure nor reverse AI's impact on brother economies.

00:08:30: For oil however the decisive question will be whether the mid-term elections in the U S can align political pieces to pave way for more normal supply conditions and push that prospect further away elsewhere in a few hours.

00:08:43: So this is all for today, I'm Ipekos Kardashian and thank you for joining me And Thank You For All Your Beautiful And Supportive Comments!

00:08:51: I hope This Episode of Market Talk has been helpful and it Has Been Insightful To You so please do not hesitate to leave your comments your reactions and your questions below as usual.

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00:09:20: So I will meet again tomorrow and until then good day trading.

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