Contributed by Samuele Furfari © Mar. 2020

Originally published as “Guerre du prix du pétrole : revanche de la technologie sur l’OPEP” Republished with permission of the author.

I admit that I do not follow the price of oil every day. This is only important for traders and speculators who reap huge profits by playing on a few cents of gigantic volumes.

If you want to understand the geopolitics of oil and therefore energy, you have to look at major trends, like that of last weekend. (This article was originally published in French on March 9, 2020).

When I published in March 2014 a book entitled “Long live fossil fuels” which indicates that there is no objective or technological reason for the price of crude to exceed $ 100 per barrel, I was taken for a wacky one. Even though I was probably the only one who dared to say it openly in a French-speaking environment, many people in the world said it orally and in writing. The facts have proven us right.

Oil demand in free fall
Faced with the sudden drop in economic activity caused by the Coronavirus epidemic, demand for oil is in free fall. Chinese oil consumption has dropped by more than 3 million barrels a day.

Obviously, this crisis will be much deeper for the world economy than that triggered by Subprimes in 2008. We expect a sharp decline in demand for primary energy and especially oil.

It goes without saying: planes that do not fly, cars that stay in the garage, deserted restaurants, closed stadiums, canceled vacations cause the consumption of petroleum products to plummet, and therefore the entire economy. Something to cheer for deep environmentalists!

As of Friday at the OPEC meeting in Vienna, as usual, Russia – a non-member – was invited to participate in the work. OPEC, which has been manipulating the price of crude since 1973, wanted to cut production to keep the price at the level before the devastating virus hit the scene. At the same time, Ryad is said to have put Iran even more on its knees for the little oil it manages to sell on the black market (Iran does not know where to store the pumped oil which it cannot sell).

The origins of the fall in the price of crude oil
It is true that for the past three years, OPEC and Russia have agreed to adjust their extractions to world demand. There has been an attempt to bring down the price so as to restrict the development of US shale oil/gas, but to no avail.

This time Moscow did not want to follow OPEC leader Ryad and refused to join the production cut to support the price. Saudi Arabia, stung in the cold, reacted in the opposite way and declared its intention to increase its crude oil production to more than 10 million barrels per day in April, after the expiration of the current agreement between OPEC and Russia in late March – known as OPEC +.

In addition, it reduced the price of all its crudes to all destinations from $ 6 to $ 8 a barrel. The consequence was immediate: the price of crude oil dropped to around $ 32 a barrel.

Oil futures contracted their biggest daily loss since 1991 during the Gulf War. During the 1998 Asian crisis, the Financial Times of September 10, 1998 stated that the only thing that was lower than the price of oil was the morale of the economy. You could say the same thing today.

The world is full of oil thanks to technology
Some, still rejecting the evidence of the abundance of crude reserves, argue that the goal is to “kill US oil” shale “. No!, The oil from the shale will not be killed by this economic ups and downs. It is there in the basement of the country which masters production technology, it is cheap to produce and production can adapt instantly to demand. Some speculate on the “huge debts” of American companies in this sector.

In a free and competitive market economy, bankruptcies are a part of life. If there are, the victims will be the small producers who have not yet been bought by the Majors. We will therefore witness a new wave of consolidation as it should be in a market economy.

All of this shows, as I keep saying, that we have indeed turned the page on oil “quarantine”. OPEC held the OECD countries by the bridle between 1973 and 2014. It was our fault because, by blindly following the models of the Club of Rome, and by ignoring the crucial role of technology – source of progress – we had proclaimed on all rooftops that “there was no more oil”, thus giving ideas of domination to the OPEC countries.

It is not wise to depend on policies as crucial as those of model-based energy. Many more in the EU deny the obvious: the world is full of oil – and even more natural gas – thanks to the development of technology. That is the driving force behind the energy world.

It is neither OPEC, nor the models and even less the EU politicians who decree the complete abandonment of fossil fuels.

What is happening on the oil price front will require even more subsidies to tax renewable energy. This reinforces my conviction that the energy transition will not take place.

Note in passing that in a few years the politicians who promise to lower CO2 emissions thanks to their political determination will try to argue that it is their foresight that caused the fall in emissions in 2020, while it is the Coronavirus who is the main actor.

I keep saying it: to reduce CO2 emissions you need either economic crises or the development of nuclear power. The rest is just palaver.

The latest book by Samuele Furfari is a review of the energy policy of 2019.


Samuele Furfari is doctor of applied sciences, chemical engineer and industrial engineer. For thirty-six years he was a senior civil servant in the Directorate-General for Energy of the European Commission. Since 2003 he has been teaching energy geopolitics at the Free University of Brussels as well as in other universities. Educational lecturer, he is very often invited. He is the president of the European Society of Engineers and Industrialists.

He is the author of ten books, the last of which is in two volumes ” The changing world of energy and the geopolitical challenges . “