Brent crude fell below $100 per barrel for the first time since September as oil markets took the US midterm results to mean no re-escalation of the Iran war soon from the US side at least. The drop pulled bond yields lower and lifted Wall Street, while the Bank of England was expected to raise rates.
Brent crude plummeted nearly 10% and dropped below $100 per barrel for the first time since September, as investors tried to work out what the Democrats' sweep of Congress in this week's midterm elections means for markets.
Oil markets read the election as a signal on the war
The thinking hinged on acceptance inside the Trump administration that the Iran war, and the fuel price and inflation surge it triggered, was the main reason for heavy Republican losses. Vice President JD Vance said the war was clearly responsible, and Donald Trump agreed, although he claimed it was worth it.
Oil markets took that to mean there would be no re-escalation of the war soon from the US side at least, and the risk premium built into crude prices dissipated.
Stocks rally and yields fall
The oil slide, which if sustained amounts to the biggest weekly drop since the pandemic plunge, pulled bond yields down across the world and lifted Wall Street stocks. The S&P 500 had its best day in three months.
The slide papered over worries in AI-focused tech stocks. US chip stocks fell further despite impressive AMD earnings, and data center firms such as CoreWeave plunged again, on worries that a Democratic-dominated Congress would push back against rapid data center building.
Central banks face a shifting oil backdrop
The Bank of England is expected to raise rates on Thursday for the first time in three years. The median of economists polled by Reuters expects the rise to 4% to be the last, with a reversal expected in 2028.
Separately, Bank of America strategists Ralph Axel and Oliver Levingston said that if oil prices keep climbing in the near term, interest rates could move significantly higher, even if the Iran war is resolved.
Sources: Investing.com (Reuters), MarketWatch (snippet-based)
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