The GERM Report

-We’re seeing the Trump Factor play out in crude oil prices.

-We figured the shelf life of the Libyan ceasefire would be brief.

Crude oil prices moved sharply higher in mid-day trading as Tropical Storm Zeta bares down on the Gulf of Mexico. US federal estimates already show some oil and gas production is offline, even before the storm reached the Gulf. Its path, meanwhile, could have an impact on PADD 1, the import-heavy district on the US East Coast. On the US commercial inventories that move the market mid-week, early signs point to a slight build in oil storage, but draws on gasoline and distillates. Elsewhere, it’s getting to the point where nothing much else will matter apart from the US election, and a tightening race is proving to be bullish.

Crude oil prices were stimulated for most of the Tuesday session on the back of storm threats and polling showing gains for the US president. The price for Brent crude oil was up about 1.9% as of 2:30 p.m. ET to hit $41.56 per barrel. Despite the jump, that’s still below peaks from last week.

Louisiana Gov. John Bel Edwards declared a state of emergency on Monday in preparation for an eventual hurricane.

“It’s easy to let your guard down late in the hurricane season, but that would be a huge mistake,” he said in a statement.

Zeta would be the fifth storm this season to hit Louisiana. The busy Atlantic hurricane season has left forecasters scrambling for names, while skewing mid-week data that traders use to gauge demand levels in the world’s largest and most transparent economy. British energy company BP started evacuating staff from some of its rigs in the US Gulf of Mexico early this week. The latest estimate from the US federal government finds about 50% of oil production in the Gulf and 55% of total gas production is shut in, a significant increase from Monday.

Estimates emailed to The GERM Report from S&P Global Platts finds US commercial crude oil inventories for last week should see a modest increase as output from the Gulf of Mexico recovers from Hurricane Delta. Both distillates, which include diesel, and gasoline inventories could post a draw, which gauging by last week’s market reaction, would be somewhat bearish. That said, data could be skewed by the steady string of hurricanes that socked the US Gulf Coast in recent weeks. The federal government was still reporting on shut ins from Hurricane Delta as recently as Oct. 16, roughly a week after the storm made landfall. But considering the number of algos at play, we would expect inventory levels to influence the market, skewed or not.

As we noted early this week, we didn’t think the news of a Libyan cease-fire would have much of a shelf life. The news from here on out will almost exclusively focus on predictions for the US presidential race. An aggregate estimate from Real Clear Politics finds Vice President Joe Biden is a shoe-in in the Electoral College. The general sentiment up until now that Biden was headed for a clear victory, Democrats would remain in control of the House and possibly gain the Senate. Now, we’re not so sure. The storied FiveThirtyEight polling house finds Biden has about an 88% shot at winning, but there’s trouble brewing. In Pennsylvania, potentially a make-or-break state, FiveThirtyEight finds Biden with a 5.1 point edge over President Trump in the state. During the 2016 election, Pennsylvania polling estimates were off by 4.4 points and Trump won it by 0.7 points, so you do the math. We would expect the race to tighten in the days leading up to the election, but Democrats must be getting a bit nervous. Smelling blood, Trump took to Twitter to claim he was slightly ahead, but arguably within the margin of error, in the key battleground states of Michigan, Pennsylvania and Wisconsin.

“The Great Red Wave is forming, and getting ready to VOTE!,” he claimed.

That matters for commodities because of Trump’s pro-oil policies while in office. Biden has embraced a clean energy agenda and proposed a ban on hydraulic fracturing on federal lands if elected. Like nervous Democrats, the prospect of a Biden win is troubling for a US energy sector busy filling out the paperwork for bankruptcies and mergers. From the inevitable marriage between Pioneer Natural Resources and Parsley Energy (yeah, I’m talking to you, OPEXASers) to the Conoco’s pricey grab of Concho Resources, consolidations will inevitably lead to redundancies in the shale patch. Traders today may be betting on a Trump win.