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

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US crude returned more than $ 60 a barrel. This is far from the depths it reached in April last year, when oil collapsed below zero ($ 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 per gallon on Friday, according to AAA. This is 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 unleash the reloaded demand for trips, cruises, flights and other oil-consuming activities.

In this context, OPEC and its allies, known as OPEC +, are scheduled to meet on Thursday to decide whether to add more barrels to the hungry market. They certainly have the firepower and the price incentive to do just that.
Last year, OPEC + reduced production by a record 9.7 million barrels per day. Emergency steps, along with reduced production by the US and other producers, have led to a sharp recovery 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 now healthy enough to intensify production this spring.

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

Indeed, OPEC + sources told Reuters last week that an increase in production of half a million barrels per day since April is possible without building stocks, although no final decision has been made.

“Given where the prices are, how will anyone tell Russia to cut production?” said Jim Mitchell, chief oil analyst in America at Refinitiv.

Shell says its oil production has peaked and will decline every year

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

First, higher prices mean that countries like Saudi Arabia, which rely on oil to balance their budgets, can bring in much-needed revenue.

Second, if OPEC + does not start producing more, other countries will. These include Texas frackers who were left out of the oil crash.

Bank of America strategists told customers in a recent note that OPEC + will “maintain market share” by pumping sooner. In 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 a gallon – and more – it will accelerate clean energy investment and persuade more drivers to give up their SUVs for electric vehicles.

“If oil rises to extreme levels,” said Fitzmaurice of Rabobank, “this only helps the story of renewables and eats up oil demand.”

Switching to electricity means more expensive memories

Hyundai recalls 82,000 electric cars globally to replace its batteries after 15 reports of fires involving vehicles. Despite the relatively small number of cars involved, recall is one of the most expensive in history.

The numbers: the recall will cost Hyundai 1 trillion Korean won, or $ 900 million. Based on the vehicle, the average cost is $ 11,000 – a high astronomical number for a recall.

The episode shows how defects in electric cars could create heavy costs for carmakers – at least in the near future, say colleagues Chris Isidore and Peter Valdes-Dapena.

Withdrawal is another indication of how expensive EV batteries are in relation to the cost of the entire car. Until the cost of batteries decreases, through higher global production and economies of scale, the cost of manufacturing electric vehicles will remain higher than comparable petrol cars.

Once batteries become less expensive, as is expected in the coming years, electric cars could become much cheaper to build because they have fewer moving parts and require 30% less labor to assemble than vehicles. traditional.

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

It follows

Months: US ISM manufacturing index

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

Wednesday: US non-manufacturing ISM index; EIA crude oil inventories; Dollar Tree, Stellantis and American Eagle earnings

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

Friday: US jobs report for February; Big Lots Winnings

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