Markets have been volatile ahead of the U.S. presidential election, and crude oil prices have been no exception.
Today (Monday, Nov. 7), the day before the election, the WTI crude oil price is up 1.79% to $44.86. Despite today's gain, WTI crude oil prices are still down nearly 6% since the start of the month.
Dr. Kent Moors, Money Morning's Global Energy Strategist, notes that the oil market is currently seeing a high level of volatility because of the election. The crude oil volatility index hit 45.34 today, its highest level since September.
Moors says, "Much of this has been driven by the ongoing and ever increasing angst in the markets as Election Day approaches."
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Of course, the election isn't the only event affecting oil prices. Here's what else is moving crude oil prices today...
Why Crude Oil Prices Are Up Today
While the election is in focus today, the biggest geopolitical event moving crude oil prices is the recent OPEC agreement.
The OPEC agreement to limit production in an attempt to drive up oil prices has been looking doubtful. Key cartel members, like Iraq and Iran, are demanding exceptions from a production cut. This has put the ability of the cartel to reach an agreement in question.
Russia's commitment to cooperating with an OPEC agreement has also appeared in doubt. The cartel needs the participation of non-members to make the cut effective, and Russia is one of the world's top oil-producing countries. Russian participation is essential.
Over the weekend, OPEC's Secretary General said Russia was "on board" with an oil production cut. This was a bit of good news for the cartel ahead of its Nov. 30 meeting. That's one of the reasons the WTI oil price rose nearly 2% today.
However, recent news about the U.S. presidential election has also impacted oil prices today. The U.S. presidential election is one of the biggest geopolitical events this year.
Here's what this election means for the price of crude oil...
This Is Why the Election Affects Crude Oil Prices
There are several factors in this election affecting oil prices. First, the next president will inherit a new set of energy challenges.
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The Paris Agreement on climate change, which was signed and ratified by the United States, entered into force on Nov. 4. The agreement's goal is to hold "the increase in the global average temperature to well below 2°C above pre-industrial levels."
The next president will have the responsibility of bringing U.S. policy into accord with the agreement.
Second, the two candidates have dramatically different ideas on energy and oil. The differences could impact both American oil consumption and production, and, ultimately, the price of oil.
Donald Trump's energy plan is to make "America energy independent." Trump's plan says he would "unleash America's $50 trillion in untapped shale, oil, and natural gas reserves."
Hillary Clinton, on the other hand, vows to take on "the threat of climate change." Specifically, Clinton's plan is to cut tax subsidies to oil and gas companies, reduce American oil consumption by a third, and transition the country to clean energy.
Third, the election has been unpredictable. Markets can price in the above differences between the candidates, but the outcome of the election has been in flux.
Polls in swing states are extremely close. For example, the RealClearPolitics average of Florida polls has Clinton with a 0.20% lead.
Breaking news has also led to dramatic changes in the election forecast. Polling analysis site FiveThirtyEight dropped its prediction of a Clinton victory from 81.5% to 64.5% in the week after FBI Director James Comey announced his organization found emails relating to a private email server set up by Hillary Clinton when she was secretary of state.
The final result of the election Tuesday will provide some much-needed clarity for investors. But don't expect an end to the volatility in oil prices. There will still be plenty of uncertainty as OPEC negotiates ahead of its Nov. 30 meeting and the new president begins laying out their policy agenda.
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