Oil slumps as Trump posts surprise wins in crucial US states

[HONG KONG] Oil slumped as traders fled risky assets on projections for surprise victories by Republican Donald Trump in key battleground states of the US presidential election.

Futures dropped as much as 4.3 per cent in New York. Markets from US stock index futures to Asian equities fell with the Mexican peso, while safe-havens including Treasuries and gold jumped.

US crude supplies increased by 4.4 million barrels last week, the American Petroleum Institute was said to report Tuesday. Government data Wednesday is forecast to also show a gain.

If Mr Trump wins, oil may fall as much as US$2 below the current level near US$45 a barrel while gold prices rise along with a sell-off in US equities and other risk assets, Citigroup Inc analysts wrote in a Nov 4 report.

While Mr Trump won in Florida and North Carolina, Democrat Hillary Clinton pulled out victories in Virginia and Colorado - two states critical to her chances. Mr Trump was competitive in another state she was counting on, New Hampshire.

"Oil prices will be crushed if Trump is elected," said Hong Sung Ki, Seoul-based commodities analyst at Samsung Futures Inc.

"If he gets elected, the impact will be greater than Brexit. Market preference for havens will be much stronger, while risk assets, including oil will plunge.

West Texas Intermediate for December delivery dropped as much as US$1.91 to US$43.07 a barrel on the New York Mercantile Exchange and was at US$43.56 at 12.13pm in Hong Kong.

The contract gained 9 US cents to US$44.98 on Tuesday. Total volume traded was more than sevenfold the 100-day average.

Brent for January settlement dropped as much as US$1.64, or 3.6 per cent, to US$44.40 a barrel on the London-based ICE Futures Europe exchange.

The contract declined 11 US cents to US$46.04 on Tuesday. The global benchmark traded at a 61-cent premium to WTI for January delivery.

"The market is concerned about Trump's trade policies," said Ric Spooner, a chief market analyst at CMC Markets in Sydney.

"The market view is that the imposing of significant import tariffs on China and Mexico and others will likely slow world growth and creates the possibility of trade wars with retaliatory action from China."

US natural gas futures were also down as much as 1.8 per cent in electronic trading, extending their biggest decline since July. A Trump victory would mean an 11 per cent drop in power plants' gas demand in 2030 from 2015 levels, while a Clinton win would boost demand by 5.8 per cent, based on Bloomberg Intelligence estimates in September.

In a special report on Nov 7, Societe Generale SA said neither election outcome would have a profound impact on oil, while analysts at Nomura Holdings Inc said a Clinton victory combined with an Opec deal could trigger sharp rebounds.

If Mrs Clinton wins, investors would be watching to see if she follows through on pledges to reduce water pollution and methane emissions from hydraulic fracturing.

Fracking, which along with horizontal drilling unlocked hard to reach oil and gas resources from shale formations, enabled the US to boost production by more than four million barrels a day from 2011 to 2015.

Longer term, the reaction in oil markets to the election result would likely take a back seat to questions over whether Opec will be able to complete a deal to restrain output at its late November meeting in Vienna.

"Oil prices are in for some volatility until the dust settles," said Tushar Tarun Bansal, director at industry consultant Ivy Global Energy in Singapore.

"However, either outcome doesn't change the immediate supply demand fundamentals in the short term. It does add to the long term uncertainty about the global markets."

Oil has retreated below US$45 a barrel following the Organisation of Petroleum Exporting Countries' failure to agree on output quotas for member countries on Oct 28.

The group must reach a consensus before finalising its September deal to cut production. Opec's chief warned of prolonged market instability if there is no agreement to limit supply.

BLOOMBERG