US midterm elections approach, crude oil enters a sensitive window

Since October, oil prices in both benchmark markets have been climbing steadily, with the front-month Brent crude futures contract having already broken above its May highs. With the US midterm elections on November 3 approaching, crude oil may be entering a highly sensitive political maneuvering window. The core logic of the oil market has shifted from supply-demand fundamentals to concerns over post-election policy uncertainty, with market volatility significantly amplified.

Pre-election political suppression: The Trump administration pulls out all stops to stabilize oil prices

With high oil prices having become a central cost-of-living issue in the midterm elections and a direct threat to Republican electoral prospects, the Trump administration has deployed every available tool to cool prices ahead of the vote. For example, it eased sanctions on Russian diesel, allowing exports to the US market in an attempt to boost supply. Another example: despite ongoing US-Iran friction, the Trump administration has maintained a posture of "much thunder, little rain," avoiding large-scale military action that would push oil prices higher and backfire on the campaign. Despite these frequent moves, US gasoline prices remained at historically high levels for the season ahead of the election. Political pressure cannot fundamentally reverse the tight supply picture caused by geopolitical conflict.

The underlying geopolitical hard constraint: Supply risk premium hard to dissipate

On the other side of political suppression is the very real risk of supply disruption and geopolitical risk premium, which forms the floor under oil prices. Iran continues to threaten to block the strait or attack energy facilities if struck; meanwhile, Houthi forces' sustained attacks on Saudi energy facilities and Red Sea shipping have cast doubt on the actual export capacity of Saudi Arabia's east-west pipeline, keeping shipping insurance and diversion costs elevated. At the same time, extremely low inventories mean any supply disruption will be amplified, and intensifying seasonal heating demand tensions will exacerbate tightness in near-month contracts.

Post-election regime-shift risk: The root of amplified volatility

The market's real sensitivity lies in the potential policy pivot the election results could trigger, which will determine the direction of oil prices after November 3. For a long time, the market has tended to believe that one of the key constraining variables behind both the US and Israel's restraint on the Iran issue is the US midterm elections. Once the midterm election uncertainty is resolved, the embers being held down could flare up at any time-in an extreme scenario, a fresh break above previous highs cannot be ruled out. Some analysts noted that the market is partially pricing in expectations of a possible re-escalation of US-Iran conflict after the election. In fact, according to foreign media reports, US and Israeli militaries have already drawn up specific plans for strikes on Iran after the midterms, and the news has made market sentiment jittery.

The reverse consideration: Directional uncertainty once the shoe drops

Conversely, it may only be after extreme upside risk is released and the election uncertainty is resolved that the market can squarely face the resolution of long-term problems. Whether it is war or peace, from any country's perspective, this issue seems unable to withstand being dragged out another year or two, or even longer. Even a short-term escalation of military strikes may be a case of "acting fast to regain control," ultimately aimed at quickly resolving the long-pending dispute. From this angle, any ripple in the news flow could also trigger rapid shifts in the direction of market volatility.

Volatility risk amplified; Enterprises may strengthen risk defenses

Regardless of whether crude supply gradually returns, it will still take considerable time to play out-but market prices always discount expectations first, causing volatility to arrive earlier and faster than expected.

Therefore, entering this year-end window, market volatility risk is rising. For industry players, this may mean adopting a wait-and-see or even avoidance posture to control risk as much as possible. Especially given that this year's traditional peak season in September and October has been notably lackluster, there is even less reason for enterprises to take on excessive risk positions. Recently, signs of production cuts have already emerged in some downstream markets, which may to some extent reflect enterprises' defensive posture amid high oil prices and volatility risk.