High oil and natural-gas prices have put energy markets under a degree of strain that hasn't been seen in a generation, Federal Reserve...
WASHINGTON — High oil and natural-gas prices have put energy markets under a degree of strain that hasn’t been seen in a generation, Federal Reserve Chairman Alan Greenspan said yesterday, but he warned policy-makers against interfering with market forces he hoped would eventually stabilize prices.
The Fed chief expressed hope those forces would spur conservation by businesses and consumers and greater exploration by energy companies. That should help get prices under control, he said.
He also urged policy-makers to be careful in any responses they might make. In prepared remarks to an energy conference, he warned they should avoid any action that would “distort or stifle the meaningful functioning of our markets.”
Greenspan spoke via satellite to the National Petrochemical and Refiners Association meeting in San Antonio. A copy of his prepared remarks was distributed in Washington, D.C.
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“We must remember that the same price signals that are so critical for balancing energy supply and demand in the short run also signal profit opportunities for long-term supply expansion,” Greenspan said in urging that market forces be allowed to take care of the problem.
The Bush administration has been pushing Congress to enact energy legislation. The House is working on a bill that would promote increased production of a broad range of energy sources, from coal to natural gas.
The measure is not expected to have much impact on the price spikes seen in recent weeks, however.
Congress has been trying for five years to pass broad energy legislation. A compromise fell apart in 2003 in a dispute over liability protection for manufacturers of a gasoline additive and concern about the bill’s $31 billion price tag.
Greenspan also said higher energy prices will stimulate research and development “that will unlock new approaches to energy production and use that we can now only scarcely envision.”
Oil prices closed at a new, all-time high last week of $57.27 a barrel. They briefly surged past $58.28 Monday, then retreated somewhat. They fell below $57 a barrel in trading yesterday.
“Markets for oil and natural gas have been subject to a degree of strain over the past year not experienced for a generation,” Greenspan said. Strong demand and lags in boosting production capacity were factors in the price increases, he said.
Higher oil prices in recent months have slowed the growth of demand, “but only modestly,” Greenspan noted.
Economists viewed his remarks as optimistic about the energy situation.
“The bottom line: It was a hopeful, upbeat talk,” said Mark Zandi, chief economist at Economy.com. “Prices look bleak now but ultimately they will elicit a response by both consumers and suppliers of energy.”
Greenspan, in his prepared remarks, did not talk about the future course of interest-rate policy. The Federal Reserve has boosted short term interest rates seven times since June to keep inflation in check.
Economists expect another increase when the Fed meets May 3.
The Fed chief did not go into detail about the impact of high energy prices on the economy.
In an October speech, Greenspan said the surge in energy prices should not be enough to push the country into a recession. At the time of those remarks, oil was trading for around $55 a barrel, slightly lower than current prices.
Greenspan yesterday stressed that “altering the magnitude and manner of U.S. energy consumption will significantly affect the path of the U.S. economy over the long term.”
He said it was critical that America’s 200 million automobiles on the highways — which he noted consume 11 percent of total world oil production — become more fuel-efficient.
Greenspan also said the resolution of “current, major geopolitical uncertainties will materially affect oil prices in the years ahead.”