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Home / Business / Stocks from a week ago: $3 gasoline may be coming-unless OPEC and Russia start pumping more oil

Stocks from a week ago: $3 gasoline may be coming-unless OPEC and Russia start pumping more oil



U.S. crude oil prices have rebounded to more than $60 per barrel. This is a far cry from the depth reached when oil prices fell below zero (to be precise, minus 40.32 US dollars per barrel) in April last year. The price of pumps has also begun to climb. According to AAA data, the national average price on Friday was $2.70 per gallon. This is well above the April low of $1.76 per gallon.

Investors are betting that the pandemic will soon be contained, which in turn will release pent-up demand for road trips, cruises, flights and other fuel-guzzling activities.

In this context, OPEC and its allies (called OPEC+) are scheduled to meet on Thursday to discuss whether to add more oil barrels to the hungry market. They must have firepower and price incentives to do this.
Last year, OPEC+ slashed its output by a record 9.7 million barrels per day. Emergency measures and production cuts by the US and other producers have caused prices to rebound strongly. In recent months, as millions of people around the world have been vaccinated against Covid, this recovery has accelerated.

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

Ryan Fitzmaurice, energy strategist at Rabobank, said: “Given the attractiveness of price increases, there should be more supply markets.”

Indeed, a source within the OPEC+ organization told Reuters last week that although no final decision has been made, it will increase production by half a million barrels per day from April without the need to increase inventory.

“Given where the price is, who can tell Russia that they need to cut production?” said Jim Mitchell, head of Refinitiv American Petroleum Analyst.

Shell said its oil production has reached its peak and will decline year by year

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

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

Second, if OPEC+ does not start to increase production, other countries will also. Including freckles in Texas due to the oil disaster.

Bank of America’s strategists told clients in a recent report that OPEC+ will “maintain market share” by raising as soon as possible. Bank of America expects OPEC+’s daily supply to increase by 1.3 million barrels in the second quarter alone.

There is another reason OPEC+ hopes to act prematurely: self-protection.

If gasoline prices continue to rise and reach $3 per gallon or more, it will only accelerate clean energy investment and persuade more drivers to abandon their gas-guzzling SUVs for electric vehicles.

Fitzmaurice of Rabobank said: “If oil prices soar to the highest level, it will only promote the development of renewable energy and stifle oil demand.”

Switching to electric means more expensive recalls

Hyundai Motor recalled 82,000 electric vehicles worldwide to replace batteries after 15 reports of car fires occurred. Although the number of cars involved is relatively small, the recall is one of the most expensive cars in history.

Figures: The recall will cost Hyundai Motor 1 trillion won ($900 million). On a per-vehicle basis, the average cost is $11,000, which is astronomically high for recalls.

According to my colleagues Chris Isidore and Peter Valdes-Dapena, this incident heralds how the defects of electric vehicles will bring high prices to automakers. The cost-at least in the near future.

The recall is another sign of how expensive electric vehicle batteries are relative to the cost of the entire vehicle. Before the cost of batteries drops, the manufacturing cost of electric vehicles will always be higher than similar gasoline vehicles through greater global production and economies of scale.

Once the price of batteries becomes cheaper (as expected in the next few years), the manufacturing cost of electric vehicles will be greatly reduced, because compared with traditional vehicles, electric vehicles have fewer moving parts and require assembly The time has been reduced by as much as 30%.

The reduction of electric vehicle parts may also mean that there will be fewer and fewer car recalls in the future. But at present, if the battery catches fire and the battery needs to be replaced, it may incur huge costs.

Next

on Monday: U.S. ISM Manufacturing Index

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

on Wednesday: US ISM non-manufacturing index; EIA crude oil inventories; dollar tree, Stellantis and American Eagle earnings

Thursday: OPEC+ conference; unemployment benefits in the United States; Kroger, Gap, and Costco earnings

Friday: US employment report for February; large gains


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