[video] Dicker: The Outlook for Oil Prices
Despite the optimism on the Senate deal that has been seen in the recent market rally, unfortunately, we still have to consider the possibility that the House of Representatives will either not bring the Senate bill to the floor or not be able to find the votes to pass the deal.
Should that happen, and should we go over the Oct. 17 deadline, the results for the oil market would be certain: Prices would crash.
That's because the oil market, despite the fact that it deals with physical products, is far more financially driven than most people think -- and those financial instruments are supported by credit.
With the prospect of a government default on U.S. Treasuries on the table, the credit markets everywhere would be in grave danger of seizing on a level not seen since the great financial collapse of 2008, driving all risk assets downwards.
Indeed, the low price that was set in oil in 2009 of under $40 a barrel was far more attributable to the lack of available credit for commercial and corporate financial oil positions than from the fear of economic slowdown. In the event of a self-inflicted default of U.S. Treasuries, that credit seizure could be even worse.
I talk more about the prospects for an oil market without a debt limit deal with Joe in the video above.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.