Energy. Why won’t low fuel prices last?

Fuel price curves look like a roller coaster: After crossing 2 euros across the country, fuel prices fell, sometimes approaching 2.50 euros per liter.

Prices under 2 Euros… until when?

An expected drop: Across the country, drivers were able to observe the drop on Monday, with a liter sometimes falling below 2 euros.

This is a direct result of the drop in the price of a barrel of oil after a relative slackening at the international level: first, a beacon of hope for what seems to be progressing negotiations between Ukraine and Russia. Then, a recession in demand from China, the world’s largest importer, imprisoned 30 million people, particularly in China’s industrial region of Shenzhen.

First strong demand due to the global economic recovery after the two-year pandemic, then the first stop of the weeks, even months, increase recently driven by the Ukraine crisis.

An unstable and volatile situation

Whether the recession will continue remains to be seen. As Thierry Bros, professor and energy expert at Sciences-Po Paris reminds us, “the recent epidemic is primarily due to the entry of a country into war, which is one of the world’s largest oil producers.”

First of all, with an unstable situation: “In the oil market, we have traders who are making scenarios for the future, but very high volatility as what traders are trying to predict is a very volatile situation” .

So when the US and British embargoed Russian oil, the question was: “Will the Europeans follow? – as they have done so far. With great uncertainty, Europe is much more dependent on Russian energies than the Americans.

A billion dollars a day to Russia to finance the war.

In fact, the European Union currently does not impose sanctions on Russia’s oil and gas exports.

However, Thierry Bros remembers that nothing has been fixed with the European sanctions. “There we had a $40 increase in the price of a barrel, then a $40 drop”. For the rest, it conjures up “a kind of gray zone”:

On the one hand, leaders want to limit as much as possible the stagnation that such an embargo would entail. On the other hand, public opinion denies that we continue to send nearly a billion euros a day to the Russians, which is used to directly finance the war and thus kill the Ukrainians.

Thierry Bros, professor at Sciences-Po Paris, energy experts

The question is: who will win? In fact, “as Russian tanks approached NATO borders, etc. ‘, explains Thierry Bros.

Cheaper oil for the Chinese?

This makes Europe most likely to eventually decide on an embargo on Russian oil and gas, with the double consequence: “Oil will then rise to $150 per barrel. The embargo affects the Russians, but not the global market. In summary, if we put an embargo on Russian oil, Moscow will sell it to China, which, as its sole but important customer, will be able to pay less.”

On the other hand, for Western consumers who are forced to turn to other producers such as Saudi Arabia, the market price will prevail – that is, $150 per barrel.

$150 is almost the level a barrel of oil reached in 2008. But with one big difference: then a euro was worth more than $ 1.6, today it is less than $ 1.1 – which significantly increases the current cost of a barrel for Europeans.

15 cents less on April 1st

As for the output growth of the Organization of the Petroleum Producing Countries (OPEC+, i.e. OPEC and its allies), this also seems uncertain, as Patrice Geoffron, professor of economics at Paris-Dauphine reminds us. Riyadh is a “great triangle” oil game between Moscow and Washington without Europeans. And in the long run, it sees no other way out of combining climate protection and security than the “invention of a low-carbon society.”

The only certainty in the short term: a “discount” of 15 cents per liter from 1 April by the government. It is not yet clear at what price this discount will be applied.

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For example, unlike what Belgium has just done, the government has refused to make any reductions in fuel taxes.