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Oil prices will significantly decline in case of U.S. default

Oil&Gas Materials 29 July 2011 14:42

Azerbaijan, Baku, July 29 / Trend A.Badalova /

Oil prices in world commodity markets will significantly fall in case of a possible U.S. default or downgrade of the country's rating, Chief International Economist at the British Company, Julian Jessop told Trend.

"I think the U.S. will avoid a default, but it would lose its AAA rating. In this case, commodity prices, including in oil, will significantly fall (excluding the price for gold and silver)", Jessop said.

Moody's rating agency has previously stated that it recommended that the high ranking of AAA sustained by the U.S. be revised in the case of decline. This is linked with concerns about not improving the upper limit of the country's public debt until Aug. 2. If the parties in Congress fail to find a compromise on this issue, the country can declare default.

Global oil prices are in decline with the backdrop of the threat of a default in U.S. and Europe. The decline is associated with fears that U.S. default might seriously impact the global economy, leading to reduction in the demand of energy.

"We still believe the U.S. government is unlikely to declare default. But if announced, its effects will be potentially much more serious than consequences of reducing the current rating of AAA", Jessop added.

Jessop said the average price for Brent will drop to $85 per barrel by late 2011.
He believes that a sharp drop in premiums, due to unrest in the Middle East, maybe another factor in the lowered prices.

After completion of the Libyan crisis, Jessop said, the price of Brent will fall by 10-15 percent.

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