The importance of the US election to the global oil market

As if this year could not get any more surreal, markets and newswires have recently had to contend with the President of the United States and Commander-in-Chief contracting Covid-19, looking the virus squarely in the eye and coming out of hospital in double-quick time.

With less than a month to go to the November Presidential election, many observers have been spooked with much speculation and misinformation around the 74-year-old’s health.

But the world’s most powerful person and his Presidential office do have a history of secrecy around illness. Franklin Roosevelt went to great lengths to conceal his use of a wheelchair after contracting polio, while campaigning for President and then in the White House.

He was the most recent President to die in office shortly after being elected to a fourth term. The mild cold that afflicted Woodrow Wilson just over century ago does seem rather more poignant today. The Spanish flu pandemic had infected millions around the world and suddenly the 28th US President was hit by the virus as well, whilst in Paris negotiating the post-first World War settlement. The White House in that instance naturally played down the illness as a mere cold.

Fast forward 100 years, another pandemic has ravaged the world and an election is on the horizon that will define the US’s future direction and foreign policy approach. This is highly significant for both the global economy and markets as central banks are taking a back seat, a second wave is impacting Europe and the world awaits game-changing vaccine news, which may take longer than many people believe.

Of course, who becomes the next POTUS is important, but investors and traders are keenly focused on whether we get a united government – that is to say where the President’s party controls both the House and the Senate.

For instance, Democratic challenger Biden has maintained a steady lead in the polls for several months, but it will be tough for him to substantially change fiscal policy if his party do not win the Senate.

What is clear are the differences and potential change in oil policy between the two Presidential candidates. The incumbent has abandoned rules on pollution and endeavoured to shore up fossil fuels, at times imploring OPEC to increase oil supply and lower prices. That said, the producer group were delighted when this policy was turned on its head this year when President Trump asked them to do the opposite in order to save the shale patch.

It is probably safe to say that Democrat challenger Biden may have had a different view to these events and doing a deal to revive oil prices would not have been part of that plan.

His administration is focused on a clean-energy revolution, by the tune of $2 trillion, and a climate policy that aims to ensure the US achieves net zero emissions by 2050. He has also pledged to decarbonise and electrify vast parts of the country’s transport sector, and by rejoining the Paris climate accord, a Biden administration would show that it favours pragmatic, multipolar diplomacy.

Hussein Sayed is chief market strategist at FXTM