The strong gains that oil enjoys today have nothing to do with real fundamentals, Covid-19 did not go away overnight and there’s no hurricane out the window.

However Tuesday is not just any day, it’s the US election day and the market cannot just leave that out of the equation. Traders need to cover positions ahead of putting the insecurity of an election behind.

Also, the market put some hope on Russia. Yesterday’s talks between Russia’s Energy Minister and domestic oil producers helped prices rise, on increasing signs that OPEC+ will delay its scheduled production boost in January.

The market knows that Russian talks bode well for a potential deal to be struck at the next OPEC+ alliance meeting on 1 December, as Russia is one of two countries to hold a de-facto “veto” in this talks.

The other country has already expressed clearly to the market that OPEC+ will do “whatever it takes”.

The market won’t be able to absorb a 2 million bpd supply rise in January, given the outlook for oil demand prospects, with demand at best flatlining at 92 million bpd to year-end/early 2021. If OPEC+ boosts production to the new target, the market may be oversupplied into next year.

Such an oversupply won’t come at a worse timing, as the oil market was hoping  for 2021 to finally draw down excess inventories from the 2020-built Covid-mega-surplus.

Back to the US, a small part of the bullish move should be assigned to an early relief rally ahead of the US election results, which might not even be fully known tomorrow morning.

Today is all about the US election, and although polls point to a Biden lead in key swing states, it ain’t over until the fat lady sings.

So the market will be on its toes through the evening and night, and we expect a minor relief rally if there is a clear result tomorrow. But be wary of downside pressures thereafter as focus returns to Covid-19.

Rystad Energy has objectively analyzed what each side’s victory could mean for oil prices in the short-term (2021) and has concluded that although a Biden win could benefit demand during 2021, his approach to foreign relations could also bring more supply to the market, thus a conservative oil-friendly Trump win could be the most bullish immediate outcome for oil. See our separate press release for more details on this analysis.