US oil prices fall in early trade Thursday as the dollar strengthens on expectations Republicans would control Senate

MELBOURNE - U.S. oil prices fell in early trade on Thursday as the dollar strengthened on expectations the Republican Party would keep control of the Senate following the U.S. election, holding back any huge COVID-19 relief package. U.S. West Texas Intermediate (WTI) crude CLc1 futures dropped 29 cents, or 0.7%, to $38.86 a barrel at 0042 GMT.

Brent crude LCOc1 futures had yet to start trading. Both benchmark contracts jumped around 4% on Wednesday.

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“The volatility in oil will remain because of its sensitivity to the U.S. dollar. And the U.S. dollar will remain volatile for at least the next few days as the U.S. election still has to be worked out,” said Commonwealth Bank commodities analyst Vivek Dhar.

Oil prices generally fall as the U.S. dollar rises as crude priced in dollars becomes more pricey for foreign buyers.

Democrat Joe Biden said on Wednesday he was headed toward victory over President Donald Trump after claiming the crucial Midwestern states of Wisconsin and Michigan, while Trump’s side opened a multi-pronged attack on vote counts through the courts.

However, even if Biden wins the U.S. presidency, current vote counting suggests the Republicans will retain control of the Senate. That would result in a divided Congress that would likely prevent Biden from enacting major priorities like expanding healthcare, fighting climate change and providing aid to millions whose lives have been upended by the coronavirus.

Oil prices surged on Wednesday on growing expectations that the Organization of the Petroleum Exporting Countries and its allies, together called OPEC+, would hold off on bringing back 2 million barrels per day of supply in January with demand sapped by new COVID-19 lockdowns.

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The market also was buoyed on Wednesday by a larger than expected drop in U.S crude stockpiles, although that was partly due to short-lived production halts in the U.S. Gulf of Mexico ahead of Hurricane Zeta.

Analysts said U.S. inventory data was not all positive, with gasoline inventories having risen by 1.5 million barrels, against analysts’ expectations for a drawdown.

At the same time, average highway use in France, Italy and Spain has dropped to its lowest level since late June, “which doesn’t bode well for gasoline demand,” ANZ Research said.

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“This is likely to put pressure on the OPEC+ alliance to delay its planned rise in output in January,” ANZ Research said.