WASHINGTON, 6 April 2005 — 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 that market forces would spur conservation by businesses and consumers and greater energy 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 to allow market forces to work. Greenspan, in prepared remarks to an energy conference, warned that 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, Texas. A copy of his prepared 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,” 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. Lawmakers in the House are working on a bill with the aim of promoting 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 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 that the higher energy prices will not only stimulate new exploration but also 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 a barrel on Monday, then retreated somewhat. They fell below $57 a barrel in trading yesterday.