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August 5th, 2008

Can Oil Drop Below $100 a Barrel?

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Oil prices dropped as low as $118 this morning. Not too long ago we could barely wrap our heads around the prospect of prices climbing over $120 a barrel. Now a consistent decline in oil prices has unveiled the possibility of oil dipping below $100 per barrel:

“We could see $100 in the next two months at the rate we’re falling,” said Simon Wardell, analyst at Global Insight. “Short of problems in the Middle East or hurricanes, I think we’re going to continue to fall.”

The pace of the drop from the record high has left some believing the market could easily fall further.

“I think below $100 could be a possibility in the next two months,” said Christopher Bellew, broker at Bache Commodities. “It’s dropped nearly $30 so far from the highs so it’s only got to go another $18.”

Market watchers anticipate the ongoing situation in Iran to be a key indicator to the future direction of oil prices:

The situation in Iran is key, Ritterbusch said. The United Nations is weighing more economic sanctions against Iran after the oil exporter indicated it had no plans to abandon its nuclear development program.

If the Iranian situation is resolved without a serious confrontation, crude prices “could easily drop to $100 a barrel,” Ritterbusch said, with gas prices retreating to $3.25 a gallon nationally.

High gas prices have led to Americans driving nearly 30 billion less miles than they did a year ago. Speculation that high gas prices will continue to keep drivers off the road has greased the decline of a barrel of oil to under $120. If drivers were to ever settle for high prices at the pump, we may never see a cheap gallon of gas again.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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