Greenspan predicts years of oil uncertainty

The world will be living with volatile oil prices for years to come, but this year’s price spike should not be serious enough to push the US into a recession, US Federal Reserve Chairman Alan Greenspan said yesterday.

“We and the rest of the world doubtless will have to live with the uncertainties of the oil markets for some time to come,” he said in a speech to an Italian-American group.

Greenspan also said his forecast of a milder economic impact from the current price spike depended on oil prices not rising significantly higher than they already have.

“Obviously, the risk of more serious negative consequences would intensify if oil prices were to move materially higher,” Greenspan said.

The Fed chairman spoke on a day when crude oil prices climbed further into record territory, with the price in New York trading hitting $54.93, up 17c from Thursday’s record close.

Greenspan said even at current levels, crude oil prices are still about 40% below the all-time highs – in inflation-adjusted terms – of February 1981.

“The impact of the current surge in oil prices, though noticeable, is likely to prove less consequential to economic growth and inflation than in the 1970s,” Greenspan said.

His comments had a soothing impact on Wall Street, giving a boost to stock prices that had suffered a 153-point drop over the previous two days as investors faced new supply worries due to threats to production in the Middle East and other key oil producing countries.

The Dow Jones industrial average rose 38.93 points yesterday to close at 9,933.38.

Greenspan predicted the global economy will adjust to the recent surge in prices by boosting energy exploration and production and by increasing fuel efficiency.

He said he believed existing technology and improvements spurred by higher prices should be sufficient to “ensure the needed supplies (of energy) for a very long while.”

“Greenspan is saying the increase in energy prices is a minor, not a major, problem,” said David Wyss, chief economist at Standard & Poor’s in New York. “But nobody knows for sure because nobody knows what is going to happen in the Middle East.”