Vulnerabilities in both political parties are seen by traders and analysts when it comes to debating the Nov. 6 election and how to trade it, but a surprising number of market participants are expecting little of importance to result in the energy sector from the presidential voting.
In a rundown of energy market fundamentals, possible election outcomes could be the least important, according to Spencer Patton, chief investment officer at Steel Vine Investments, who lists potential disruptions of the current hurricane season, talk of possible releases from the Strategic Petroleum Reserve, declining Chinese economic results, potential Middle East risks and quantitative easing with higher importance.
“There’s not a huge part that really hinges around the election,” Patton says. “If you saw a Republican victory, the markets would respond quite favorably to that [as] a pro-business development. So that would be [positive] for oil prices just like it would be [positive] for other markets. You would see virtually every risk asset move higher.”
As this issue of Futures went to press, Patton and other analysts said the markets, however, were expecting an Obama victory. “That’s where the odds are right now,” he says. “So if there is an Obama win, we won’t see too much of a difference.”
Dominick A. Chirichella, founder of the Energy Management Institute, also downplays the election’s importance. He says oil is being driven by three main factors now: Whether the new European Central Bank’s bond buying program will offer a solution to Europe’s fiscal problems, the potential for new quantitative easing from the U.S. Federal Reserve and geopolitics in the Middle East.
“These are the dominant price drivers with the election still not in the cross hairs of market participants,” Chirichella says. “When we move closer to the election I would expect market participants to react to whoever is in the lead at the time.”