Oil gains more than 2% as OPEC eyes deeper output cuts

An abandoned oil rig in the U.K. during Covid-19. "We've been talking about this for 20 years and some of the changes we saw this week were unlike anything we've seen before," said Mindy Lubber, CEO and president of sustainability nonprofit Ceres, speaking about action from investors on climate change.

Jason Alden | Bloomberg via Getty Images

Oil prices rose over 2% on Tuesday, advancing with other financial markets on U.S. Election Day although traders were bracing for volatility depending on the voting results and as surging coronavirus cases around the world fed worries about fuel demand.

Brent futures rose 84 cents, or 2.2%, to $39.81 a barrel, while U.S. West Texas Intermediate (WTI) crude settled 85 cents, or 2.3%, higher at $37.66 per barrel.

After a rancorous presidential campaign that exposed the depth of the political divisions in the United States, Americans streamed to the polls on Tuesday to choose either incumbent Donald Trump or challenger Joe Biden to lead a pandemic-battered nation for the next four years.

"The election is dominating markets today. Crude oil is up ... The general feeling seems to be that the final outcome could come as early as tomorrow," said Robert Yawger, director of energy futures at Mizuho in New York, noting that a Democratic sweep could lead to a super-sized stimulus package that would be positive for oil.

Major U.S. stock market indices were all trading higher, with the S&P 500 up 1.8%.

The U.S. dollar, meanwhile, dipped 0.6% against a basket of currencies as risk appetite grew on bets that Biden will win.

A weaker dollar makes oil cheaper for holders of other currencies, which traders said was helping to boost crude prices.

Analysts said oil price gains were capped by rising coronavirus cases and the threat of additional lockdowns that could depress energy demand.

Italy and Norway became the latest European countries to tighten COVID-19 restrictions.

Oil prices, which dropped over 10% last week, got a reprieve this week after OPEC member Algeria came out in support of deferring a planned increase in OPEC+ oil output from January and Russia's energy minister raised the possibility with the country's oil companies to avoid another collapse in prices.

The Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, together known as OPEC+, are due to taper cuts of 7.7 million barrels per day (bpd) by around 2 million bpd from January.

The oil price moves came ahead of data expected to show U.S. crude stockpiles rose 900,000 barrels last week after gaining 4.3 million barrels in the prior week.

The American Petroleum Institute (API), an industry group, will release its inventory report later Tuesday ahead of government data from the U.S. Energy Information Administration (EIA) on Wednesday.