UT Economist Expects ‘Soft Landing’ of Oil Prices

CHATTANOOGA — Skyrocketing oil prices will level off or drop slowly before they get too high and upset the world’s economy, a University of Tennessee oil industry analyst said Thursday.

UT-Chattanooga economist Ziad Keilany said high oil prices caused by production cuts from OPEC, the Organization of Petroleum Exporting Countries, could backfire if they slow the world economy too much.

“There is serious discussion within OPEC and other oil producing countries about what to do now,” Keilany said. “Prices have reached a critical point which could inflict serious harm on the economies of the world. That is counterproductive for OPEC and they don’t want that.

“At the same time, they don’t want a sudden increase in production which may cause prices to plummet.”

OPEC production cuts have boosted oil prices to nearly $30 a barrel, the highest price since the Gulf War nine years ago.

Keilany said cuts are not likely to ease before an OPEC production meeting in March. He expects oil producers then to attempt a ‘soft landing’ of oil prices by gradually increasing production.

In the past, OPEC agreements have crumbled quickly as members squabbled over production, causing oil prices to drop rapidly.

This time may be different, Keilany said.

“I do not think (oil producers) are going to have an undisciplined retreat this time,” Keilany said. “This production cut is unusual in that it has lasted almost nine months, which is longer than past cuts.

“This tells me that they are able to control prices and production without a crack in the agreements, and they are likely to be able to engineer a soft landing.”