Light Sweet Greenspan

While everyone else is anxiously awaiting Heir Greenspan's appearance on Wednesday before the Senate Banking committee, where, among other things, they will discuss Fannie Mae's accelerating death spiral, poor Greg Robb of CBS MarketWatch was assigned the task of reporting on today's energy speech to the National Petrochemical and Refiners Association Conference in San Antonio, Texas.

Greg's report Fed chair sees oil price frenzy ending uses the familiar technique of plucking a few excerpts, translating a few paragraphs into human readable form, then applying a snappy, upbeat headline. So, a complex passages such as this:

"Reflecting a low short-term elasticity of demand, higher prices in recent months have slowed the growth of oil demand, but only modestly. The slowdown in the growth of demand coupled with expanded production, which the price firmness has induced, has required markets to absorb an increased pace of inventory investment. The markets' response has been a shift in the spread between spot prices and near-term futures that has facilitated inventory hedging. Futures prices for delivery of both West Texas Intermediate and Brent crudes for the summer exceed spot prices."

is reduced to a more digestible form such as this:

"Greenspan noted that inventories are likely to build because futures prices for delivery of oil for summer delivery exceed spot prices."

and the money line is simply quoted:

"If sustained, these market technicals could encourage enough of an inventory buffer to damp the current price frenzy."

So, where did that headline come from? There was never a prediction of an end to the price frenzy here - in fact, there are two qualifiers ("If sustained" and "could encourage") and then the prospect of "damping" a "frenzy", which according to my Webster's translates to "diminishing the intensity" of "a temporary madness". So, was this wishful thinking? It sounds like the headline should have said "Fed chair sees chance of a slightly less intense madness in the oil market" - this sounds a whole lot worse than the original and is probably closer to what was intended.

Note that CNN/Money applies the same sort of upbeat headline Greenspan: Oil prices should cool even though it was based on a more accurately titled Reuters story Greenspan: Markets May Cool Oil Frenzy. It seems that if the words are sufficiently ambiguous, they can be interpreted as desired by the news organization ... how convenient.

Two other things of note:

• It was almost a year ago, when oil first surged past $40, that high energy prices were regularly referred to as "transitory" factors - this language appeared in numerous Fed statements and was dropped soon after it was clear that $40+ oil was here to stay, so the Fed's track record on predicting the future of oil prices leaves a lot to be desired.
  

• Since in the short term, the supply is basically fixed, the most important factor determining the price of oil today is demand, and in particular, demand from the world's fastest growing economies in Asia - China in particular. This demand would not be near what it is today, had we not so stimulated their economies with debt fueled consumption from across the Pacific ... all made possible by historically low interest rates from the Fed and lending practices that now seem well out of control. You'd think that would be worth mentioning sometime - that maybe Fed policy and American consumerism are big factors contributing to higher energy prices.