Greenspan sounds alarm on oil supplyNews index...
WASHINGTON Alan Greenspan, the former Federal Reserve chairman, offered a grim view on Wednesday of the world's rising vulnerability to high crude oil prices, saying he was skeptical that oil producers could pump enough crude to meet future demand.
Since the 1940s, U.S. consumers have shown an uncanny ability to shoulder rising energy prices, but consumers' immunity to oil price shocks was running out, Greenspan said.
"The United States, especially, has been able to absorb the huge implicit tax of rising oil prices so far," Greenspan told the Senate Foreign Relations Committee in his first congressional testimony since leaving the U.S. central bank earlier this year. "However, recent data indicate we may finally be experiencing some impact."
Greenspan was appointed Fed chairman by President Ronald Reagan in 1987, and served until Jan. 31 of this year.
Lawmakers would occasionally call on Greenspan to speak on energy issues when he was chairman, but his views were still highly sought on Capitol Hill.
Since 2004, crude oil prices have doubled. Since the start of 2002, the cost of a barrel of oil has soared by $50.
Crude oil prices have stubbornly stayed above $70 a barrel despite OPEC and other world producers pumping to capacity. Prices are still within striking distance of the $75.35 a barrel record set in U.S. futures in April.
Greenspan warned that a big oil price increase could spur "a significant contraction in the economy."
Greenspan said that few of the world's dominant producers, aside from Saudi Arabia, see the danger that rising crude oil prices pose to the economy, and to their sustained ability to sell oil.
Saudi Arabia is the only country with enough untapped reserves to meet future short-term energy crunches, and has unveiled a $50 billion plan to lift output capacity by 1.5 million barrels per day by 2009.
Greenspan said while U.S. businesses had so far been able to improve productivity to compensate for costly energy, households were suffering from higher gasoline prices.
"Current oil prices over time should lower to some extent our worrisome dependence on petroleum," said Greenspan, who now runs a private consultancy. "Still higher oil prices will inevitably move vehicle transportation to hybrids, and despite the inconvenience, plug-in hybrids."
Greenspan warned that the buffer between supply and demand was extraordinarily thin and that price spikes were a risk.
"The balance of world oil supply and demand has become so precarious that even small acts of sabotage or local insurrection have a significant impact on oil prices," he said, adding that global refining capacity was still too limited.
Strong euro causes concern
Finance ministers from France, Spain and Luxembourg said Wednesday that they were growing more concerned that the euro's appreciation might sap the European economic expansion, Bloomberg News reported from Luxembourg.
"It is not a type of level we would like, but we have been living with a strong euro for a while," the Spanish economy minister, Pedro Solbes, said at a meeting of European Union finance chiefs.
The euro's 8 percent advance against the U.S. dollar this year risks removing a prop from the $10 trillion economy by making exports more expensive, just as the European Central Bank prepares a possible interest rate increase on Thursday for a third time in six months.
Earlier this week, the euro reached a 13-month high point of $1.2979. It was trading at $1.2799 late in New York on Wednesday. About 40 percent of the euro region's gross domestic product stems from shipments abroad.