Energy Shots #111:

WTI’s “Election Effect”

Crude markets are navigating murky waters in the final two months of 2024.

Bears can point to uncertain economic conditions in major demand centers (China), abundant spare OPEC capacity, and incremental supply growth in regions like Guyana, the U.S., and Canada.

Bulls can point to new stimulus measures, low global inventories, and increasingly volatile geopolitics on at least three fronts (Mideast, Ukraine, South China Sea).

This week, markets face a U.S. presidential election that will influence all of the variables listed above. Uncertainty about Tuesday’s outcome is evident in positioning trends — speculators’ open interest in WTI reached record lows last week and remains at the 10YR 0th percentile in the latest CFTC data.

While unraveling the effect of this week’s headline event on each aforementioned variable is beyond the scope of this Energy Shots, Tuesday’s election offers a timely opportunity to analyze the historical relationship between US elections and US crude markets.

ES #111 modeling reveals two consistent trends in the days preceding and following Election Day versus non-election years.

1. The Election Price Effect

2. The Election Curve Effect

WTI’s Election Price Effect:

Analyzing WTI futures daily performance since 1985 and normalizing prices to baseline center¹ on election day shows December (front-month) WTI contracts benefit from an ‘Election Tuesday’ pop relative to the five preceding and ensuing trading days. While many confounding variables and a limited sample size prevent concrete conclusions, this effect appears for both median and average normalized values in election years but does not appear during the same period for non-election years.

This ‘election effect’ similarly emerges for the lead-month (January) WTI futures contract in the five preceding and ensuing trading days around the first Tuesday of November but is absent in non-election years.

WTI’s Election Curve Effect

Using the Dec-Jan spread as an indicator of immediate election-related changes to market sentiment, our modeling shows contango increases in the days surrounding ‘Election Tuesday’ in election years vs. non-election years since 1985.

WTI During the Last Five Elections

The ‘election price effect’ discussed above is visible in unadjusted December WTI futures ($/barrel) in the days leading up to and trailing Election Day (T=0).

Likewise, the trend appears for January WTI futures contracts leading up to and trailing Election Day (T=0) for four of the last five presidential election years.

What to Monitor in 2024’s Election Week

As noted above, crude markets are navigating an extensive list of contradictory directional cues. With speculators waiting on the sidelines for a sign from the electoral college, this week’s outcome could catalyze a material rebound in spec activity and downstream price volatility.

OPEC’s decision to ‘punt’ eased output restrictions for another month brings the near-term concerns about Iranian oil infrastructure back into focus — particularly in the event of a Trump election victory that provides Israel with more targeting freedom. While spare OPEC (Saudi) capacity could swiftly offset derailed Iranian production, historically elevated short interest across ICE/NYMEX crude complex contracts warrants monitoring as a catalyst for rapid upside price action.

In the context of Energy Shots #111 modeling, the Dec ‘24 WTI contract ended last week at $69.49 with one trading day before Tuesday’s election and a test of the historical WTI ‘election effect’.

1  Election day is our baseline center ‘anchor’ point off of which we calculate the deviation of preceding and ensuing futures prices for all years — Values are shown as the median and average deviation from baseline center for election years and non-election years. Election years include all presidential election years since 1988. Non-election years include years without a presidential election between 1985 and 2023.

Readers can request a chart deck behind Energy Shots #111 and send follow-up questions to [email protected].

This commentary contains our views and opinions and is based on information from sources we believe are reliable. This commentary is for informational purposes, should not be considered investment advice, and is not intended as an offer or solicitation concerning the purchase and sale of commodity interests or to serve as the basis for one to decide to execute derivatives or other transactions. This commentary is intended for Mobius clients only and is not considered promotional material.