The Chairman offered his thoughts today in a speech before the National Petrochemical and Refiners Association Conference. The speech contains a quite detailed look at supply and demand conditions in oil and natural gas markets, but concludes with some words of faith that markets will work:
We are unable to judge with certainty how technological possibilities will play out in the future, but we can say with some assurance that developments in energy markets will remain central in determining the longer-run health of our nation's economy. The experience of the past fifty years--and indeed much longer than that--affirms that market forces play the key role in conserving scarce energy resources, directing those resources to their most highly valued uses. Adequate productive capacity, of course, is driven also by nonmarket and policy considerations.
To be sure, energy issues present policymakers and citizens with difficult decisions and tradeoffs to make outside the market process. But those concerns, one hopes, will be addressed in a manner that, to the greatest extent possible, does not distort or stifle the meaningful functioning of our markets. We must remember that the same price signals that are so critical for balancing energy supply and demand in the short run also signal profit opportunities for long-term supply expansion. Moreover, they stimulate the research and development that will unlock new approaches to energy production and use that we can now only scarcely envision.
The market apparently liked what it heard. From the AP, via BusinessWeek Online:
Stocks got a lift from Federal Reserve Chairman Alan Greenspan Tuesday, rising modestly after he said the recent climb in oil prices was already curbing demand for crude. Oil futures dropped sharply on the news.
But you might want to hold the parade for now.
"Nothing has really changed for the market. You have rising rates, decelerating earnings growth and you've got energy prices," said Russ Koesterich, senior portfolio manager at Barclay's Global Investors in San Francisco. "Energy continues to be a drag on the market because, sure, you're down $1 a barrel today, but these prices are still high and they'll start to bite into consumer spending at some point."...
"I think you're getting at least a few investors, with an asset allocation point of view, seeing these lower prices and getting back into the market," said Joseph Battipaglia, chief investment officer at Ryan Beck & Co. "The underlying economic fundamentals are pretty good, but you still have everyone's favorite ghost -- oil -- making things very tentative."
Same old, same old.