Oil prices extended their decline on Thursday, driven by a stronger dollar and reduced crude imports in China, which outweighed potential supply disruptions linked to Donald Trump’s presidential win and output cuts from Hurricane Rafael.
Initially, Trump’s election triggered a sell-off, pushing oil prices down over $2 as the dollar surged.
However, prices later recovered slightly, ending Wednesday’s session with a loss of less than 1%, according to Reuters.
Onn Thursday morning, Brent crude futures had dropped 48 cents, or 0.6%, to $74.44 a barrel, while U.S. West Texas Intermediate crude fell 61 cents, or 0.9%, to $71.08.
Analyst from Saxo Bank, Ole Hansen, noted that downside pressures are coming from a strong dollar and sluggish demand, while upside risks are linked to the potential for increased sanctions on Iran and Venezuela under Trump, as well as ongoing Middle East conflicts.
“Some of these potential drivers will have no impact in the foreseeable future, but they all add up to the current narrative leading to rangebound trading.
“Absent any major geopolitical escalation, the short-term outlook leans toward downside risk in my opinion,” he said.
The dollar remained near four-month highs on Thursday as investors awaited key central bank decisions, including from the U.S. Federal Reserve. A stronger dollar makes oil more expensive for holders of other currencies, which typically puts downward pressure on oil prices.
“Historically, Trump’s policies have been pro-business, which likely supports overall economic growth and increases demand for fuel,” said Priyanka Sachdeva, senior market analyst at Phillip Nova. “However, any interference in the Fed’s easing policies could lead to further challenges for the oil market.”
Additional downward pressure on oil prices came from data showing a 9% decline in China’s crude oil imports in October, marking the sixth consecutive month of year-on-year declines. This was further compounded by an increase in U.S. crude inventories.
Trump is anticipated to revive his “maximum pressure” sanctions on Iranian oil exports, which could reduce supply by as much as 1 million barrels per day (bpd), according to Energy Aspects estimates.
In his first term, Trump also imposed tougher sanctions on Venezuelan oil, which were briefly loosened under the Biden administration before being reinstated.
