Stocks coming week: $ 3 gasoline could be imminent – unless OPEC and Russia start pumping more oil

US crude rose above $ 60 a barrel. That’s a far cry from the depths reached last April when oil fell below zero (minus $ 40.32 a barrel, to be exact) for the first time in history. Prices at the pump are also starting to climb. The national average hit $ 2.70 per gallon on Friday, according to AAA. That’s well above the April low of $ 1.76 per gallon.

Investors are betting the pandemic will soon be under control – which, in turn, will trigger pent-up demand for road trips, cruises, flights and other oil-consuming activities.

In this context, OPEC and its allies, known as OPEC +, are should meet on Thursday to decide to add more barrels to the hungry market. They certainly have the firepower and the price incentives to do just that.
Last year, OPEC + cut production to a record 9.7 million barrels per day. The emergency measures, along with production cuts by the United States and other producers, led to a sharp rebound in prices. This recovery has accelerated in recent months as millions of people around the world have been vaccinated against Covid.

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

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

Indeed, sources within OPEC + said Reuters Last week, an increase in production of half a million barrels per day from April is possible without stockpiling, although a final decision has not been made.

“Given the price situation, how will Russia be told that it has to reduce its production?” said Jim Mitchell, head of petroleum analysts for the Americas at Refinitiv.

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

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

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

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

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

If gasoline prices continue to rise and hit $ 3 a gallon – and beyond – it will only accelerate investments in clean energy and persuade more drivers to ditch their gas-guzzling SUVs for electric vehicles.

“If oil reaches extreme levels,” Rabobank’s Fitzmaurice said, “it only helps the renewable energy story and erodes the demand for oil.”

Switching to electric means more expensive callbacks

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

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

The episode shows how faults in electric cars could lead to high costs for automakers – at least in the near future, report my colleagues Chris Isidore and Peter Valdes-Dapena.

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The recall is another indication of the price of EV batteries relative to the cost of the entire car. Until the cost of batteries comes down, through increased global production and economies of scale, the cost of manufacturing electric vehicles will remain higher than comparable gasoline cars.

Once batteries get cheaper, as expected in the coming years, electric cars could become much cheaper to build because they have fewer moving parts and require up to 30% less man-hours to build. assembly compared to traditional vehicles.

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


Monday: ISM US manufacturing index

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

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

Thursday: OPEC + meeting; Unemployment claims in the United States; Profits from Kroger, Gap and Costco

Friday: US Employment Report for February; Jackpot wins

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