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Pressure on oil prices continues unabated -

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Pressure on oil prices continues unabated

AM - Saturday, 16 October , 2004 08:04:00

Reporter: Leigh Sales

HAMISH ROBERTSON: Let's go to the United States now, where the Chairman of the Federal Reserve,
Alan Greenspan, says he doesn't expect the impact of the current surge in oil prices to be as bad
as the crisis of the 1970s. But Mr Greenspan says the world is going to have to endure uncertainty
in oil prices for some time to come, probably into the middle of this century, at least.

US oil futures hit a record high this week, and the pressure on prices shows no signs of abating,
as our North America Correspondent, Leigh Sales, reports from Washington.

LEIGH SALES: Alan Greenspan says he thinks the world will adjust to higher oil prices through
technology and market forces.

ALAN GREENSPAN: Improving technology is reducing the energy intensity of industrial countries and
presumably recent oil price increases will accelerate the pace of displacement of energy intensive
production facilities.

If history is any guide, oil will eventually be overtaken by less costly alternatives, well before
conventional oil reserves run out. Indeed, oil displaced coal despite still vast untapped reserves
of coal, and coal displaced wood without denuding of forest lands.

We will being the transition to the next major sources of energy perhaps before mid century, as
production from conventional reservoirs is projected to peak. Nonetheless, it will take time. We
and the rest of the world doubtless will have to live with the uncertainties of the oil markets for
some time to come.

LEIGH SALES: US oil futures hit a record high of US$54.88 a barrel this week. But Mr Greenspan
notes that when that figure is adjusted for inflation, it lands well below the 1981 peak. The oil
crisis, which started in the 1970s, was sparked by instability in the Middle East, sending the
world's major economies into recession.

The Federal Reserve Chairman says he doesn't believe the current surge in oil prices is going to
have the same effect.

ALAN GREENSPAN: Moreover 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.

So far this year the rise in the value of imported oil, essentially attacks on US residents, has
amounted to about three quarters or per cent of GDP. The effects were far larger in the crises of
the 1970s.

LEIGH SALES: But Alan Greenspan issued a qualifier.

ALAN GREENSPAN: The risk of more serious negative consequences would intensify if oil prices were
to move materially higher.

LEIGH SALES: Oil futures have hardly reacted to Alan Greenspan's remarks, adjusting just marginally
lower.

This is Leigh Sales in Washington for Saturday AM.

(c) 2006 ABC