Oil prices to hurt, but not like 1970s

Oil prices to hurt, but not like 1970s

TOKYO – Skyrocketing energy prices will weigh on global growth but will likely exact a much smaller toll than surging oil prices did in the 1970s, US Federal Reserve Chairman Alan Greenspan said yesterday.

Despite an inevitable near-term impact on growth, oil prices remain below their inflation-adjusted peak of 1981 and the world’s economy has grown more energy-efficient in recent decades, Greenspan said in a speech to Japanese business leaders. “Although the global economic expansion appears to have been on a reasonably firm path through the summer months, the recent surge in energy prices will undoubtedly be a drag from now on,” he said.”The effect of the current surge in oil prices, though noticeable, is likely to prove significantly less consequential to economic growth and inflation than the surge in the 1970s.”Greenspan, making his first visit to Tokyo in five years and probably the last before his term is due to end in January, did not address the outlook for US monetary policy and did not take any questions.Greenspan’s remarks, the text of which had been made available to the media in advance, were accidentally released ahead of time by a news organisation, surprising the market.US crude oil prices hit a record high of US$70,85 a barrel in the immediate aftermath of Hurricane Katrina, which slammed into the US Gulf Coast on August 29, shuttering much of the region’s oil-producing and refining capacity.Prices have eased since, trading at US$63,72 a barrel at 0800 GMT yesterday.However, Greenspan noted oil futures for distant months had moved up close to current spot prices, and he said that suggested the market did not expect oil production outside of Opec countries to be adequate to meet rising world demand.The Fed chief said Opec members and other developing countries appeared to see little benefit from investing in additional production capacity, citing as evidence the “significant proportion” of oil revenue invested in financial assets.He also issued a warning on refining capacity.”Besides feared shortfalls in crude oil capacity, the status of world refining capacity has become worrisome as well,” Greenspan said, saying oil production had risen faster than refining capacity for a decade.Meanwhile, Opec trimmed its forecast for 2005 world oil demand growth on Monday, blaming record high oil prices.The Organisation of the Petroleum Exporting Countries, in its monthly report, cut its demand growth forecast for 2005 to 1,2 million barrels per day (bpd) and said it expected growth to recover to 1,5 million bpd next year.”There is enough evidence to indicate that oil demand growth will probably slow down further in the months to come and it is likely that consumption growth will be further revised down as we approach the end of the year,” Opec said.- Nampa-Reuters”Although the global economic expansion appears to have been on a reasonably firm path through the summer months, the recent surge in energy prices will undoubtedly be a drag from now on,” he said.”The effect of the current surge in oil prices, though noticeable, is likely to prove significantly less consequential to economic growth and inflation than the surge in the 1970s.”Greenspan, making his first visit to Tokyo in five years and probably the last before his term is due to end in January, did not address the outlook for US monetary policy and did not take any questions.Greenspan’s remarks, the text of which had been made available to the media in advance, were accidentally released ahead of time by a news organisation, surprising the market.US crude oil prices hit a record high of US$70,85 a barrel in the immediate aftermath of Hurricane Katrina, which slammed into the US Gulf Coast on August 29, shuttering much of the region’s oil-producing and refining capacity.Prices have eased since, trading at US$63,72 a barrel at 0800 GMT yesterday.However, Greenspan noted oil futures for distant months had moved up close to current spot prices, and he said that suggested the market did not expect oil production outside of Opec countries to be adequate to meet rising world demand.The Fed chief said Opec members and other developing countries appeared to see little benefit from investing in additional production capacity, citing as evidence the “significant proportion” of oil revenue invested in financial assets.He also issued a warning on refining capacity.”Besides feared shortfalls in crude oil capacity, the status of world refining capacity has become worrisome as well,” Greenspan said, saying oil production had risen faster than refining capacity for a decade.Meanwhile, Opec trimmed its forecast for 2005 world oil demand growth on Monday, blaming record high oil prices.The Organisation of the Petroleum Exporting Countries, in its monthly report, cut its demand growth forecast for 2005 to 1,2 million barrels per day (bpd) and said it expected growth to recover to 1,5 million bpd next year.”There is enough evidence to indicate that oil demand growth will probably slow down further in the months to come and it is likely that consumption growth will be further revised down as we approach the end of the year,” Opec said.- Nampa-Reuters

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