Greenspan optimistic about fuel prices, but cautions against long-term stability

| 4/7/2005

Despite record high oil costs in recent months, Federal Reserve Chairman Alan Greenspan said April 5 that crude oil and retail fuel prices should stabilize soon, but cautioned against long-term optimism.

During remarks to the National Petrochemical and Refiners Association in San Antonio, Greenspan said consumer demand for energy had dwindled very little despite high fuel prices at the pump. However, Greenspan also indicated that long-term high prices could signify a weakening of the traditional fuel market, saying “much will depend on the response of demand to price over the longer run.”

Unusually high springtime prices for light sweet crude oil, which have traditionally dropped after the winter months, may have diesel-using trucking companies, both large and small, more than a little concerned. According to a report from MSNBC, diesel prices have soared to an average price of $2.30, up 65.5 cents from one year ago.

However, MSNBC reported, these high prices could be a sign of a strong economy.

“Just about every product sold in the U.S. eventually winds up in a tractor-trailer or railroad car powered by diesel,” according to the report. “With the U.S. economy humming along, so is demand for diesel.”

High usage hasn’t been limited to the diesel market alone: Oil consumption by four-wheelers has also kept demand high. Greenspan said more than 200 million light vehicles in the United States solely account for the consumption of 11 percent of the world’s total oil production.

Although Greenspan said current prices would level out, high prices in the future could lead to lower consumer demand and, ultimately, a greater push toward alternative fuel sources, such as biodiesel.

--by Aaron Ladage, Land Line staff