MW What the presidential election means for gold, oil, natural gas and other commodities

By Myra P. Saefong

Capital Economics says it may take years to see a big election impact on the energy market

The U.S. election outcome isn't likely to have a big impact on commodities such as energy, metals and grains in the short run, but oil and natural gas could be influenced in the years to come by who wins the presidency given the differences in the candidates' policies, according to Capital Economics.

"The outcome of the U.S. election won't have a sizeable impact on most commodity prices over the next few months," wrote Bill Weatherburn, senior climate and commodities economist at Capital Economics, in a Tuesday note. "Instead, differences between the candidates' views on vehicle emissions, [liquified-natural-gas] exports and foreign-policy stance on Iran could affect oil and [natural-]gas prices over the next five years."

A win for Republican nominee and former President Donald Trump would provide "more encouragement" for oil and natural-gas drilling than a presidency by Democrat and current Vice President Kamala Harris, he added, but that would only support U.S. production "at the margin."

Year to date as of Monday, West Texas Intermediate crude futures (CL.1) (CLZ24) were trading nearly 6% lower, while global benchmark Brent crude (BRN00) (BRNZ24) has lost more than 7%. Futures prices on Tuesday fell modestly, extending steep declines of more than 6% a day earlier as geopolitical risks to Middle East oil flow eased.

U.S. oil and gas production has climbed to record highs under President Joe Biden, so it's difficult to see how the industry has been significantly impeded by a Democratic administration, said Weatherburn. U.S. field production of crude was at a record high of 13.5 million barrels per day for the week ended Oct. 18, according to the Energy Information Administration.

Harris, meanwhile, has not outlined any plans to regulate the sector more than Biden, he noted. Weatherburn expects prices and productivity improvements to be the "key determinants" of U.S. oil and gas output over the next few years - and if oil prices fall, production is "unlikely to rise much further."

In terms of demand, Trump, if elected, is expected to try to remove subsidies for electric vehicles or weaken vehicle-emission standards. If that happens, it would lead to higher U.S. oil demand, Weatherburn said.

However, Trump's friendship with Tesla Inc. $(TSLA)$ Chief Executive Elon Musk suggests that the "status quo may be maintained and that the U.S. vehicle fleet will steadily become more fuel efficient as electric- and hybrid-vehicles sales rise," he added.

Under a Trump presidency, there's a risk that tariffs on steel (HRN00) and aluminum are further expanded to apply to Canada, the European Union and Mexico, all of which are currently exempted, said Weatherburn.

Given that steel imports make up 20% to 25% of U.S. consumption of the metal, "tariffs on exempt partners would make domestic steel more expensive," he noted.

'A Trump presidency would be more inflationary than a Harris one, and it would probably be more uncertain too - both of which make gold an attractive asset.'Bill Weatherburn, Capital Economics

Gold, meanwhile, has climbed in October alongside the rising probability of a Trump victory, said Weatherburn. "A Trump presidency would be more inflationary than a Harris one, and it would probably be more uncertain too - both of which make gold an attractive asset," he wrote.

Read: Gold hasn't been acting like it normally does. What that means for investors.

If Harris wins, that could mean gold prices fall back in the weeks following the election outcome, he added. However, against the backdrop of U.S. interest-rate cuts, Capital Economics believes gold prices would rise again in 2025.

On Tuesday, gold for December delivery (GC00) (GCZ24) settled at a record high of $2,781.10 an ounce on Comex, up $25.20 or 0.9% for the session, after trading as high as $2,784.90.

-Myra P. Saefong

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October 29, 2024 15:13 ET (19:13 GMT)

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