Bernstein Says If Oil Market Conditions Continue Lower For Longer A 1980s Style Sovereign Debt Crisis Would Seem Inevitable

On Thursday, Bernstein Research issued a report regarding the fall in oil prices seen in recent months, saying that if prices remain low a wave of sovereign defaults may be seen. Currently, WTI Crude Oil is trading at $32.28 a barrel, which has put pressure on governments such as Russia, Qatar, and Kuwait whose budgets rely heavily on proceeds from exporting oil. Neil Beveridge, an analyst at Bernstein wrote, "Elevated commodity prices and loose monetary policy over the past decade has led to significant growth in debt across emerging markets. The collapse in commodity prices means that many commodity-producing countries are now running double-digit fiscal deficits...If oil prices stay lower for longer, the probability of an 80's style sovereign debt crisis would seem inevitable." Analysts at Bernstein highlighted 2 points that have the potential to keep oil prices low and possibly lead to the default of multiple oil producing nations around the world. 1. Rising interest rates in the United States In December, the Federal Reserve decided to increase interest rates due to strength in the US economy. This has caused the debt burdens of multiple oil producing countries to become greater and has increased the possibility of default with funds around the world flowing into the US. 2. Currency depreciation The US dollar has significantly increased over the past year. Analysts at Bernstein noted that this has the potential to drain liquidity from emerging markets, and has further hurt the governments of many oil producing sovereign states. United States Oil Fund LP (ETF) last traded at $9.34.