EXPLAINER: Will oil prices keep falling after Democrats' US midterm win?

Global oil prices dropped significantly after the Democrats defeated the Republicans in the recent US midterm elections, and are poised to take control of both chambers of Congress in the next two years.

As of November 4, Brent crude, the global oil benchmark, fell to $94.62 per barrel, while West Texas Intermediate (WTI), another major benchmark, dropped to $88.12 per barrel.

Analysts attributed the decline to optimism that mounting political pressure on US President Donald Trump, a Republican, could lead to an easing of tensions in the Middle East.

The Democrats’ victory gives them greater power to block Trump’s policy initiatives, including efforts to restrict funding for the Middle East war that he launched last February, according to Houston-based consulting firm Lipow Oil Associates.

But does their victory mean Filipinos can expect sustained relief from high fuel prices?

Double-digit rollback, peso-dollar exchange rate

The impact of the Democrats’ victory on global oil prices has already been felt in the Philippines, according to the Department of Energy (DOE).

The agency’s Oil Industry Management Bureau said the shift in the US political landscape fueled expectations of a resolution to the US-Iran conflict and eased concerns over possible disruptions to Middle East oil supplies.

On November 10, local gasoline prices were slashed by ₱16.80 per liter, marking the country’s first double-digit rollback since the conflict began.

Diesel prices also dropped by P4.10 per liter, while kerosene prices fell by P3.70 per liter.

However, the DOE cautioned that fuel prices may not stabilize immediately, particularly because of fluctuations in the Philippine peso against the US dollar.

In June, the DOE said local oil prices could take six months to a year to return to prewar levels even if a peace deal is reached between the US and Iran, largely because of continuing supply chain disruptions.

“Maybe there’s space for it to come down as well, but does it go down to the prewar level? Not immediately, probably another six to 12 months. It’s really just an issue of restarting the supply that was disrupted by the war,” DOE Undersecretary Alessandro Sales previously said.

Analysts also noted that the newly elected members of the US Congress will not take their oaths of office until January 2027. They must first elect their leaders and finalize committee assignments before taking up legislation.

While Democrats can pressure Trump to end the war against Iran, he retains veto power over legislation and command of military operations and executive actions that could affect global oil supplies.

“President Trump still retains full discretionary authority over military strikes, over blockades and sanctions, licenses, and so on,” Rystad Energy geopolitical analyst Jorge Leon said.

Waiting for a resolution

According to market intelligence platform Dow Jones Energy, oil prices could fall by as much as $20 per barrel once the US-Iran war ends. However, it cautioned that the reduction would take time to translate into lower prices at local gasoline stations.

Vessels diverted because of the conflict would first have to return to their original shipping routes, potentially causing backlogs.

The crude oil carried by these tankers would also still need to be refined and processed before reaching the market. A significant portion of the global diesel supply, meanwhile, comes from Russian refineries.

Another factor is the possibility of further attacks in the Strait of Hormuz before the year ends.

With the incoming Democratic lawmakers yet to assume office, Trump still has a window to pursue his plans before the new Congress convenes in January.

“...if the current administration sees it as a 'window' to complete unfinished tasks before the new Congressional layout takes their seat in January,” said James Brito, executive director of Refining and Oil Products at Dow Jones Energy.

Ultimately, while consumers are currently enjoying some relief from high fuel costs, there is no guarantee that the downward trend will continue.

The DOE, for its part, has assured the public that it will ensure Filipino consumers benefit immediately whenever global oil prices decline.— MCG, GMA News

Follow GMA News Online on Facebook for real-time news and developments in the Philippines and around the world.