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Greenspan sees oil bottoming out at $40

Former Federal Reserve Chairman Alan Greenspan suggested that oil prices have probably bottomed out at about $40 per barrel after tumbling more than 20 percent in the past two months into a bear market.

“It’s hard for me to imagine it going very much lower, but it could,” he said Wednesday, according to the transcript of a conference call organized by Rock Creek Group, an investment advisory firm in Washington.

Greenspan sees oil trading in a range of about $40 to $50 a barrel over the next couple of years. A $50 price would be high enough to encourage new shale oil production in the U.S., he said.

 Oil futures traded near $42 a barrel in New York on Thursday, down from a 2016 closing high of $51.23 on June 8.

Greenspan made the following additional points during the call:

  • China’s economic system is “unsustainable” because the government effectively guarantees “everything” against loss. “They started going in the right direction” in trying to change that but “then they reversed course” in the face of political opposition, he said.
  • He was surprised by how strong automobile sales were last month, but he cautioned that there were limits on how far consumer spending could carry the economy while business investment was weak. “This is an unstable outlook,” he said.
  • The U.S. federal government should be running a budget surplus, not a deficit, to build up funds to pay for retiring workers. The surplus should be 3 percent of gross domestic product or more, Greenspan said.-Bloomberg