(Bloomberg) -- Oil extended its recent slide as investors assessed how US President Joe Biden’s decision not to seek reelection could impact markets.
West Texas Intermediate’s more-active September contract settled near $78 a barrel, touching a five-week low. The slump was accelerated by trend-following commodity trading advisers, according to EA Quant Analytics.
Some traders say that Biden’s decision against running for a new term has oil analysts pricing in victory for Donald Trump, who would push for a boost in US crude production that would be bearish for prices in the long term.
Biden abandoned his bid for a second term and endorsed Vice President Kamala Harris as concerns mounted that he couldn’t beat Donald Trump. Equity markets rallied despite the political uncertainty as tech earnings season begins.
Despite the recent slump in front-month prices, WTI’s prompt spread — the difference between its two nearest contracts — has strengthened to $1.53 in backwardation, which signals demand is outweighing supplies in the short term.
Oil has pushed higher this year as OPEC+ reined in output, setting the scene for a drawdown in global stockpiles over the Northern Hemisphere summer. Geopolitical tensions have also contributed, with the Israel-Hamas war and clashes with Iranian-backed groups including the Houthis in Yemen sparking concerns of regional instability that could threaten supply.
Traders are also monitoring Canada, where a blast of heat across the Alberta oil patch has triggered a wave of wildfires. An estimated 348,000 barrels a day of production are at risk, according to local wildfire and Alberta Energy Regulator data.
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