Crude oil prices plummet 2.5% on strong US dollar; Brent slips below $74

Crude oil prices slid 2.5% on Wednesday, November 6, snapping a five-day winning streak, weighed down by a stronger US dollar as early reports suggested that Republican candidate Donald Trump is edging closer to securing a second term in the White House.

The stronger dollar exerts pressure on oil and other commodities, making them more expensive for buyers using other currencies. Brent crude oil futures fell to $73.64 per barrel, marking a 2.5% drop from the previous close of $75.53. Similarly, WTI crude futures declined to around $70.22, down 2.45% from the prior close of $71.99.

Crude prices have experienced notable fluctuations in recent sessions, influenced by OPEC+'s decision to delay December production plans for the second time, escalating tensions in the Middle East, the upcoming U.S. Federal Reserve policy meeting decision, and signs of economic improvement in China, the world’s largest crude importer.

Prices to remain volatile

Rahul Kalantri, VP Commodities, Mehta Equities, said, "Crude oil prices experienced significant volatility last week, rebounding from earlier lows due to a decline in U.S. oil stocks and heightened geopolitical tensions. U.S. crude oil inventories fell by 0.5 million barrels, contrary to expectations of a 1.5-million-barrel increase, and well below the previous week’s stock level of 5.5 million barrels."

"The recovery in crude prices was further supported by geopolitical unrest in the Middle East and the potential postponement of production increases by OPEC+ nations. However, gains were tempered by the strength of the US dollar and weak economic data from Europe," he added.

Looking ahead, Rahul Kalantri anticipates crude oil prices to remain volatile this week, influenced by fluctuations in the dollar index and ongoing geopolitical tensions. 

Dollar index hits 4-month high

The US Dollar Index, which measures the greenback’s strength against a basket of six major currencies, surged by 1.9% to 105.30, reaching its highest level in nearly four months amid rising odds of a Trump victory in the US presidential election.

In the past few sessions, the Dollar Index was under pressure after polls showed rising support for the Democratic presidential nominee and Vice President Kamala Harris in key swing states, prompting investors to unwind some of their positions betting on Trump’s victory.

However, the actual trends showed that Trump is gaining ground over Harris in several critical swing states, leading to a sharp rebound in the dollar index.

According to the Associated Press, Donald Trump won key Pennsylvania, putting him just three electoral votes shy of defeating Kamala Harris to win the White House. Trump has 267 of the 270 electoral votes needed to win the White House. A win in Alaska or any of the outstanding battleground states — Michigan, Wisconsin, Arizona, or Nevada—would send the Republican former president back to the Oval Office, the report said.

Pennsylvania, a part of the once-reliable Democratic stronghold known as the “blue wall” with Michigan and Wisconsin, was carried by Trump when he first won the White House in 2016 and then flipped back to Democrats in 2020.

Trump also flipped Georgia, which had voted for Democrats four years ago, and retained the closely contested state of North Carolina, the report added.

Analysts generally assume Trump's plans for restricted immigration, tax cuts, and sweeping tariffs, if enacted, would put more upward pressure on inflation and bond yields than Harris' center-left policies.

Trump's proposals are also likely to push up the dollar and potentially limit how far U.S. interest rates might ultimately be lowered.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.