High oil and natural gas prices have put energy markets under considerable strain, but market forces could eventually lead to a big enough increase in crude oil inventories and bring prices down, Federal Reserve Chairman Alan Greenspan (search) said Tuesday.

The Fed chief expressed hope that market forces would spur conservation by businesses and consumers and greater energy exploration by energy companies.

He also urged policy-makers to be careful in any responses they might make to allow market forces to work. Greenspan, in prepared remarks to an energy conference, warned that they should avoid any action that would "distort or stifle the meaningful functioning of our markets."

"Markets for oil and natrual gas have been subject to a degree of strain over the past year not experienced for a generation," Greenspan said. Strong demand and lags in boosting production capacity were factors in the price increases, he said.

Speaking via satellite from Washington to an oil refiners' conference in San Antonio, Greenspan said recent record high oil prices had slowed oil demand growth, although "only modestly."

Slower rising demand and increasing output had already led to faster oil inventory building, he said, adding that stockpiling could pickup further as producers seek to cash in on higher futures prices.

Crude oil prices closed at a new all-time high last week of $57.27 a barrel. They briefly surged past $58.28 a barrel on Monday, then retreated somewhat on the New York Mercantile Exchange (search). They were hovering close to $57 a barrel in trading on Tuesday.

Greenspan did not talk about the future course of interest rate policy in the United States. The Federal Reserve (search) has boosted short term interest rates seven times since last June to keep inflaiton in check. Economists are expecting another increase on May 3, the Fed's next scheduled meeting.

The Fed chief did not go into detail about the impact of high energy prices on economic activity.

In a speech last October, Greenspan said that the surge in energy prices should not be enough to push the country into a recession.

At the time of those remarks, oil was trading for around $55 a barrel — slightly lower than current prices.

Greenspan on Tuesday stressed that "altering the magnitude and manner of U.S. energy consumption will significantly affect the path of the U.S. economy over the long term.

He said it was critically important that America's 200 million automobiles on the highways — which he noted consume 11 percent of total world oil production — become more fuel efficient.

Reuters and the Associated Press contributed to this report.