[Goldfisch]

Greenspan says oil prices strain energy markets
By JEANNINE AVERSA
The Associated Press
04/06/2005

Warns against interfering

WASHINGTON - High prices for oil and natural gas have put energy markets under a degree of strain that hasn't been seen in a generation, Federal Reserve Chairman Alan Greenspan said Tuesday.

Still, he warned policymakers against interfering with the market forces that he believes will stabilize prices.

The Fed chief expressed belief that market forces would spur conservation by businesses and consumers and greater energy exploration by energy companies. Those reactions should help get prices under control, he said.

Greenspan also urged policymakers to be careful in any responses they might make to allow market forces to work. Speaking to an energy conference, he warned that policymakers should avoid any action that would "distort or stifle the meaningful functioning of our markets."

Greenspan spoke via satellite to the National Petrochemical & Refiners Association meeting in San Antonio. A copy of his remarks was distributed in Washington.

"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," he said.

The administration of President George W. Bush has been urging Congress to enact energy legislation. House members are working on a bill to promote increased production of a broad range of fuels. However, the measure isn't expected to have much impact on the high prices seen in recent weeks.

Congress has been trying for five years to enact broad energy legislation. A compromise on a bill 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 new exploration as well as research and development "that will unlock new approaches to energy production and use that we can now only scarcely envision."

He said, "Markets for oil and natural gas have been subject to a degree of strain over the past year not experienced for a generation." 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," he noted.

Greenspan didn't talk about the future course of interest rate policy in the United States, nor did he go into detail about the impact of high energy prices on economic activity.

The Fed has raised short-term interest rates seven times since June to keep inflation in check. Economists expect another increase on May 3, the Fed's next scheduled meeting.

Oil prices closed at an all-time high last week of $57.27 a barrel. They briefly surged past $58.28 a barrel on Monday, then retreated a bit. On Tuesday, oil for May delivery fell 97 cents, or 1.7 percent, to close at $56.04 a barrel on the New York Mercantile Exchange. Still, the price of oil is well below the inflation-adjusted high of more than $90 a barrel set in 1990.