Oil prices dynamics to depend on U.S. economy after possible default

Oil&Gas Materials 30 July 2011 11:29 (UTC +04:00)

Azerbaijan, Baku, July 30 / Trend A.Badalova /

The dynamics of global oil prices will depend on the extent of the U.S. economy's damage in case of default in the country, Climate Change and Energy Policy Analyst at the Cascade Policy Institute Todd Wynn said.

He believes the possible declaration of default in the United States may have a different impact on global oil market.

"The decline in oil demand and consequently decline in oil prices on the backdrop of the weakening U.S. economy can be one of options," Wynn wrote Trend in an e-mail.

He said a U.S. default would affect the entire global economy and will weaken its growth in the future. Depending on the extent of the damage to the U.S. economy, oil prices may fall in the long on the backdrop of a weak economy.

"Another option would be the higher prices, as downgrade of the country's credit rating can contribute to diversification towards oil," Wynn said.

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.

Moody's previously stated that it has sent the U.S. ranking -AAA for revision as the country's public debt has not improved and may not improve until Aug. 2. If parties in Congress fail to find a compromise on the issue, the country may declare a default.