Alan Greenspan and the price of oil

If there is one thing that can be said with absolute certainty about former Fed chief Alan Greenspan, it is that he is not very good at connecting dots - not while the housing bubble was inflating a few years ago and not today as the price of crude oil veers toward $100.

In an item from the Wall Street Journal Energy Roundup Blog appearing yesterday afternoon - Greenspan Welcomes $100 Oil, Sort Of - it is as if the price of oil and the current production levels of oil are two completely independent variables.

Former Federal Reserve Board Chairman Alan Greenspan said that, though the recent surge in oil prices to more than $90 a barrel is clearly having a “significant impact” on the economy, he has “mixed feelings” because the climb in prices is “forcing us to break our addiction to oil” at a time when the world is getting closer to the point where it is becoming harder to extract oil around the globe.

Energy prices are rising rapidly and it is becoming painful (dot A), but, it might be good that prices are rising now because it's getting harder to produce the stuff (dot B).

Could it be that there is a connection between the two dots - that oil prices are going higher because oil is already harder to produce?

Well, according to OPEC, apparently not.

In this Bloombeg video, OPEC President Mohamed al-Hamli says there is "no shortage" of crude oil. The high price for crude is due to both "bottlenecks in downstream refineries" and a weaker dollar - there are three and a half million spare barrels a day that can be summoned if need be.

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What did you expect? A T. Boone Pickens type reply like, "This is it. This is all we can produce. Deal with it". Just think what sort of alternative energy boom that would kick off.

We'll probably find out soon enough how much oil OPEC can really produce.