Greenspan says no oil problems

In a speech yesterday Alan Greenspan said that oil supplies will keep up
with demand. Market forces will assure that we always have the desired
amount of oil. Even though we have discovered few new fields, our
reserves have increased 100 billion barrels over what we extracted. I
suggest this is the result of creative accounting practices. Quite a
different view than Glenn presents from the Society of Exploration
Geophysicists.

Excerpts below:

Alan Greenspan, the chairman of the Federal Reserve, said Friday that
the long-term outlook for global oil supplies is reassuring even though
anxiety about dwindling reserves has helped push spot prices to nearly
$55 a barrel.

More disturbing than the run-up in spot prices, Mr. Greenspan said, has
been the sharp rise in the price of long-term futures contracts for oil
that would be delivered as late as 2010. Long-term futures prices
remained steady at about $20 a barrel from 1990 to 2000, even though
spot-market prices fluctuated from $11 to $40 during that period. This
time around, long-term prices have climbed to about $35.

"Unlike past concerns, the current situation reflects an increasing fear
that existing reserves and productive capacity have become subject to
potential geopolitical adversity," Mr. Greenspan said in a speech here
to the National Italian American Foundation, according to a text of his
remarks. "These anxieties patently are not frivolous, given the stark
realities evident in many areas of the world."

But he went on to argue that higher oil prices would eventually lead to
the discovery of new reserves, greater investment in new production and
alternative energy sources that would allow supplies to keep up with
demand over the long term.

Though Mr. Greenspan conceded that there have been relatively few new
oil fields discovered in recent years, he said the world's net proven
reserves have risen by 100 billion barrels over the last decade even
though more than 250 billion barrels have been extracted.

Noting that the Energy Department predicted in the 1970's that oil
prices would reach the equivalent of $120 a barrel, Mr. Greenspan said
market forces would lead to both increased oil production, greater
energy efficiency and faster development of alternative sources of
power.

"If history is any guide, oil will eventually be overtaken by
less-costly alternatives well before conventional oil reserves run out,"
he said.

Despite that generally sunny prognosis, which is consistent with Mr.
Greenspan's deeply held belief that market forces will eventually solve
almost any kind of shortage, the Fed chairman suggested that the
short-term outlook might well be bumpy.

Gasoline prices, which actually declined during the summer because
refineries increased their output to take advantage of higher profit
margins, are likely to mirror movements in crude oil prices for the rest
of the year.
Received on Sat Oct 16 12:33:31 2004