Stocks next week: $ 3 gasoline could be around, unless OPEC and Russia start pumping more oil

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U.S. crude has topped $ 60 a barrel. That’s a far cry from the depths it reached last April when oil fell below zero (negative $ 40.32 a barrel, to be exact) for the first time in history. Pump prices are also starting to rise. The national average reached $ 2.70 a gallon on Friday, according to AAA. That’s well above the April low of $ 1.76 per gallon.

Investors are betting that the pandemic will soon be under control, and that in turn it will trigger the accumulated demand for road trips, cruises, flights and other oil-consuming activities.

In this context, OPEC and its allies, known as OPEC +, are expected to meet on Thursday to discuss whether to add more barrels to the hungry market. They certainly have the firepower and the price incentive to do so.
Last year, OPEC + reduced production by a record 9.7 million barrels a day. Emergency steps, along with production cuts by the U.S. and other producers, led to a sharp rise in prices. This recovery has accelerated in recent months as millions of people around the world have been vaccinated against Covid.

OPEC + could soon announce that the market is already healthy enough to increase production this spring.

“Given the attractiveness of higher prices, there should be more supply in the market,” said Ryan Fitzmaurice, Rabobank’s energy strategist.

In fact, OPEC + sources told Reuters last week that an increase in production of half a million barrels per day from April is possible without building inventories, although no decision had been made. final.

“Given where prices are, how will anyone in Russia say they have to cut production?” said Jim Mitchell, chief of America’s oil analysts at Refinitiv.

Shell says its oil production has peaked and will fall each year

There are several good reasons for OPEC + to release more barrels.

First, higher prices mean that countries like Saudi Arabia that depend on oil to balance their budgets can generate much-needed revenue.

Second, if OPEC + does not start producing more, other countries will. This includes Texas frackers who were sidelined by the oil crash.

Bank of America strategists told clients in a recent note that OPEC + will “preserve market share” by pumping rather. During the second quarter alone, Bank of America expects OPEC + to add more than 1.3 million barrels per day of supply.

There is another reason why OPEC + will want to act before it is too late: self-preservation.

If gasoline prices continue to rise and reach $ 3 per gallon (and beyond), it will only accelerate clean energy investments and persuade more drivers to leave their SUVs with gasoline for electric vehicles.

“If oil soars to extreme levels,” said Rabobank’s Fitzmaurice, “this only helps the history of renewable energy and eats up oil demand.”

Switching to electricity means a more expensive recovery

Hyundai recalls 82,000 electric cars worldwide to replace its batteries after 15 vehicle-related fire reports. Despite the relatively small number of cars involved, the withdrawal is one of the most expensive in history.

The figures: the withdrawal will cost Hyundai 1 trillion Korean won, or $ 900 million. Depending on the vehicle, the average cost is $ 11,000, an astronomically high number for removal.

The episode indicates how the defects of the electric car could generate heavy costs for car manufacturers, at least in the near future, report my colleagues Chris Isidore and Peter Valdes-Dapena.

Withdrawal is another indication of the cost of EV batteries in relation to the cost of the entire car. Until the cost of batteries is reduced, thanks to increased worldwide production and economies of scale, the cost of manufacturing electric vehicles will remain higher than comparable gasoline cars.

Once batteries become more expensive, as expected in the coming years, electric cars could be much cheaper to build because they have fewer moving parts and require up to 30% less man-hours to assemble. comparison with traditional vehicles.

Fewer parts in electric vehicles could also mean car recoveries will be less common in the future. But for now, there would be significant costs if battery fire issues require a battery replacement.

Until next time

Monday: US ISM Manufacturing Index

Tuesday: Benefits from Target, Kohl’s, AutoZone, AMC Entertainment and HP Enterprise

Wednesday: US non-ISM manufacturer index; EIA crude inventories; Earnings from Dollar Tree, Stellantis and American Eagle

Thursday: OPEC + meeting; Unemployment claims in the US; Kroger, Gap and Costco earnings

Friday: U.S. jobs report in February; Big lot wins

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