In a note published Tuesday, Bank of America (NYSE:BAC) analysts named oil as the best commodity to hedge against during the upcoming U.S. presidential election, which is scheduled to be held in November of this year.
Bank of America analysts indicated, according to the note, that long-term oil contracts are the best hedge from their point of view against geopolitical risks at election time, adding that oil will witness an upward trend during the US elections.
Bank of America economists attributed their positive outlook for oil prices to the fact that the impact of geopolitical conditions is unlikely to improve because major global players are not focusing much on de-escalation.
The note explained that if the escalation in the Middle East continues, oil is the natural winner among the most important assets traded in the market, especially in light of the continued occurrence of unexpected developments in the conflict.
Bank of America's note today comes after its analysts wrote early Monday morning ahead of the crude oil price spike that oil prices reflected no risk premium at all, meaning the premium was zero, adding that it was trading cheaply.
Last week, the Bank of Canada said in its monetary policy statement that it saw little chance of geopolitical risks escalating in the Middle East, while Goldman Sachs (NYSE:GS) said yesterday that it expects strong summer demand to push the oil market into a large deficit in the third quarter, of about 1.3 million barrels per day.
In terms of trading, the price of Brent crude futures settled at $81.55 per barrel, and the price of US West Texas Intermediate crude futures settled at $77.70 per barrel.
