Stocks week ahead: $ 3 petrol could be around the corner unless OPEC and Russia start pumping more oil

Stocks week ahead: $ 3 petrol could be around the corner unless OPEC and Russia start pumping more oil

by
U.S. crude oil reached above $ 60 a barrel. This is far from the depth it reached last April when oil plunged below zero for the first time in history (negative $ 40.32 per barrel, to be exact). Prices at the pump are also starting to climb higher. The national average reached $ 2.70 per liter on Friday, according to AAA. This is well above the April low of $ 1.76 per liter.

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

Against this background, OPEC and its allies, known as OPEC +, must meet on Thursday to discuss whether they want to add even more barrels to the hungry market. They definitely have the firepower and the price incentive to do so.
Last year, OPEC + reduced production by 9.7 million barrels per day. The emergency measures, coupled with the reduction in production by US and other producers, caused a sharp rise in prices. The 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 boost this spring.

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

Indeed, sources within OPEC + told Reuters last week that a production increase of half a million barrels per day from April is possible without building up stocks, although a final decision has not been made.

“Given where prices are, how would anyone tell Russia to limit production?” says Jim Mitchell, head of U.S. oil analysts 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 such as Saudi Arabia, which rely on oil to balance their budgets, can bring in much-needed revenue.

Second, if OPEC + stops producing, other countries will do the same. This includes breakers in Texas that were eliminated by the oil spill.

Bank of America strategists told customers in a recent note that OPEC + will maintain ‘market share’ by pumping more soon. Already in the second quarter, Bank of America expects OPEC + to add more than 1.3 million barrels per day.

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

If gasoline prices continue to rise to $ 3 per liter (and more), it will only accelerate energy savings and persuade more drivers to dump their gas-powered SUVs for electric vehicles.

“If oil shoots to extreme levels,” Rabobank’s Fitzmaurice said, “it just helps the story of renewable energy and eats away at the demand for oil.”

The switch to electric means more expensive memories

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

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

The episode shows how defects in electric cars can cause huge costs for car manufacturers – at least in the near future, report my colleagues Chris Isidore and Peter Valdes-Dapena.

The recall is another indication of how expensive EV batteries are relative to the cost of the entire car. Until the cost of batteries drops, the cost of manufacturing electric vehicles will be higher than comparable gasoline engines due to increased production worldwide and economies of scale.

Once batteries become cheaper, as expected in the coming years, electric cars can become much cheaper to build because they have less moving parts and require as much as 30% less labor time for assembly compared to traditional vehicles.

Fewer parts for electric vehicles can also mean that car recalls will become less common in the future. But for now, there can be significant costs if problems with battery fire need to be replaced.

Following

Monday: US ISM Manufacturing Index

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

Wednesday: US ISM Non-Manufacturing Index; EIA crude oil stock; Dollar Tree, Stellantis and American Eagle earnings

Thursday: OPEC + meeting; U.S. Unemployment Claims; Kroger, Gap and Costco earnings

Friday: U.S. Work Report for February; Big lot of earnings

.Source