Editor's note: Yousef Alshammari, a former research fellow at the Organization of Petroleum Exporting Countries (OPEC), is the CEO and head of oil research at CMarkits, London, UK. The article reflects the author's opinions, and not necessarily the views of CGTN.

The pressure on oil prices had increased over the past week due to two factors – a worsening COVID-19 situation in Europe and rise in global crude oil supply. In an effort to contain the COVID-19 outbreak, many European countries had announced total lockdowns including Austria, Belgium, France, Germany, and the UK.

This had raised the possibility of a global lockdown as the number of COVID-19 cases continue to spread rapidly. Brent closed at $37.45 while West Texas Intermediate (WTI) closed at $35.72, both recording their lowest levels since June 2020. 

Adding to the bearish sentiment, global supplies continue to rise especially in Libya, the U.S. and Norway. Libyan production is now at 800,000 bpd and it is expected to reach 1.3 million barrels per day (bpd) in 2021. The U.S. production has also increased by 1.2 million bpd weight for weight per weight (w/w) to stand at 11.1 million bpd.

Long-term impact on oil markets

This week the market will be watching for the U.S. presidential elections on November 3. It is expected that a Trump victory could boost the U.S. financial markets giving investors more certainty on continued business as usual in terms of government regulations, taxes and economic measures. This may reflect a slight positive impact on the oil markets over the short term.

On the other hand, a Biden victory may lead markets the other way over the short term as the Democratic presidential candidate has pledged increased corporate taxes and banning new oil fracking projects upon entry into the White House. 

Perhaps the biggest worrying factor for the market is lifting the sanction on the Iranian crude oil exports which could bring more than 2.3 million bpd of Iran's ceased production back into the markets in a period of fragile demand. That may add to the bearish sentiment already observed in the oil markets.

Nonetheless, we expect that although a Biden victory may negatively affect prices in the short-term, it could lead to a price spike over the long term as it threatens the future of the U.S. shale oil.

Banning new fracking projects will limit the growth in U.S. oil production, and hence, it could lead to a shortage in crude oil supply as the economy's recovery over the next couple of years. That may also offset expected increase in supplies from OPEC members currently under U.S. sanctions, i.e., Iran and Venezuela. 

Biden's $2 trillion commitment to clean energy would also mean that the oil industry will be under-invested and that could lead shortages in supply over the next five years when the world recovers from the COVID-19 crisis.

A Trump victory, on the other hand, would mean pursuing a business as usual scenario where the U.S. production will continue to grow as oil prices recover over the next few years. New rigs are already being added despite current low prices and that is mainly due to relatively stable prices above $40 that were maintained over the past few months thanks to the OPEC+ production cuts.

Another issue is how both candidates will handle the COVID-19 crisis. If Biden wins and decides to shut down the economy to contain the number of deaths, that will then trigger a loss of demand crisis which could require deeper cuts from oil producers.

We expect the short term impact of the U.S. elections to be limited compared with the long term which may be quite significant. 

Little impact on the direction of OPEC+ 

Furthermore, the markets will be watching the OPEC+ meeting taking place at the end of this month which is expected to extend current cuts into 2021. The duration of extension will be essential for supporting prices. We do not expect an extension for a long duration given the uncertainty surrounding the demand picture in 2021.

Current lockdown measures are expected to last till early December after which economic activity may return and which may support the price recovery. Furthermore, India, the second largest importer of crude oil, has seen its diesel fuel demand improving over this month as it eases lockdown measures.

The results of the U.S. elections are expected to have little impact on the OPEC+ agreement, though a Trump victory may form an additional supporter for a sustained agreement in 2021 and beyond. 

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