Monday, October 18, 2004
Greenspan says oil price agony milder than in 1970s
WASHINGTON: Soaring oil prices should inflict less damage on US economic growth and inflation than the 1970s oil shock, Federal Reserve chairman Alan Greenspan said on Friday. But the harm could intensify if oil prices moved "materially higher," he warned.
"The impact of the current surge in oil prices, though noticeable, is likely to prove less consequential to economic growth and inflation than in the 1970s," Greenspan said.
Oil prices now were only three-fifths of the peak in February 1981 after accounting for inflation, and the rise in imported oil prices amounted to about 0.75 per cent of economic output, he said.
"The effects were far larger in the crises of the 1970s," Greenspan said in a prepared speech here to the National Italian American Foundation. "But, obviously, the risk of more serious negative consequences would intensify if oil prices were to move materially higher," he said.
New York’s main crude oil contract has soared nearly 70 per cent this year, spiking Friday at a record $55. Adjusted for inflation, however, prices are far below the levels reached in the wake of the 1979 Iranian revolution when they surged to upwards of $80 a barrel in today’s money.
Greenspan said the price surge was likely to squeeze industries most heavily dependent on oil, speeding up a transition to more fuel-efficient practices or alternative energy sources. "Improving technology is already reducing the energy intensity of industrial countries," he said.
"Presumably, recent oil price increases will accelerate the displacement of energy-intensive production facilities," he added. Oil would eventually be overtaken by cheaper alternatives well before conventional reserves ran out, Greenspan predicted.
In the past, oil had displaced coal despite vast untapped coal reserves and coal had displaced wood without denuding forests, he said.
Uncertainties about supply, fed by political tensions, particularly in the Middle East, had pressed oil prices higher, Greenspan said.
Supply concerns led the oil industry to seek to build up larger inventories, pushing up demand and straining production. "Adding to the difficulties is the rising consumption of oil, especially in China and India, both of which are expanding economically in ways that are relatively energy intensive," he said.
"Even the recent notable pickup in OPEC output, by exhausting most of its remaining excess capacity, has only modestly satisfied overall demand."
The Federal Reserve boss said he expected that "part of the recent rise in spot prices is expected to wash out over the longer run."
Greenspan said the United States would likely start switching to the next major sources of energy in mid-century, when conventional oil reservoirs were expected to start declining. "In fact, the development and application of new sources of energy, especially non-conventional oil, is already in train.
Nonetheless, it will take time," Greenspan said.
"We, and the rest of the world, doubtless will have to live with the uncertainties of the oil markets for some time to come." Last month, Greenspan blamed the steep increase in energy prices for dragging the American economy into a "soft patch" in late spring after strong growth in late 2003 and early 2004.
"The impact of the current surge in oil prices, though noticeable, is likely to prove less consequential to economic growth and inflation than in the 1970s," Greenspan said.
Oil prices now were only three-fifths of the peak in February 1981 after accounting for inflation, and the rise in imported oil prices amounted to about 0.75 per cent of economic output, he said.
"The effects were far larger in the crises of the 1970s," Greenspan said in a prepared speech here to the National Italian American Foundation. "But, obviously, the risk of more serious negative consequences would intensify if oil prices were to move materially higher," he said.
New York’s main crude oil contract has soared nearly 70 per cent this year, spiking Friday at a record $55. Adjusted for inflation, however, prices are far below the levels reached in the wake of the 1979 Iranian revolution when they surged to upwards of $80 a barrel in today’s money.
Greenspan said the price surge was likely to squeeze industries most heavily dependent on oil, speeding up a transition to more fuel-efficient practices or alternative energy sources. "Improving technology is already reducing the energy intensity of industrial countries," he said.
"Presumably, recent oil price increases will accelerate the displacement of energy-intensive production facilities," he added. Oil would eventually be overtaken by cheaper alternatives well before conventional reserves ran out, Greenspan predicted.
In the past, oil had displaced coal despite vast untapped coal reserves and coal had displaced wood without denuding forests, he said.
Uncertainties about supply, fed by political tensions, particularly in the Middle East, had pressed oil prices higher, Greenspan said.
Supply concerns led the oil industry to seek to build up larger inventories, pushing up demand and straining production. "Adding to the difficulties is the rising consumption of oil, especially in China and India, both of which are expanding economically in ways that are relatively energy intensive," he said.
"Even the recent notable pickup in OPEC output, by exhausting most of its remaining excess capacity, has only modestly satisfied overall demand."
The Federal Reserve boss said he expected that "part of the recent rise in spot prices is expected to wash out over the longer run."
Greenspan said the United States would likely start switching to the next major sources of energy in mid-century, when conventional oil reservoirs were expected to start declining. "In fact, the development and application of new sources of energy, especially non-conventional oil, is already in train.
Nonetheless, it will take time," Greenspan said.
"We, and the rest of the world, doubtless will have to live with the uncertainties of the oil markets for some time to come." Last month, Greenspan blamed the steep increase in energy prices for dragging the American economy into a "soft patch" in late spring after strong growth in late 2003 and early 2004.
posted by Agent Akce, 1:27 AM