Investors are betting that 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.
OPEC + may soon announce that the market is healthy enough to increase production this spring.
“Given the fascination of higher prices, there must be more supply coming to the market,” said Ryan Fitzmaurice, energy strategist at Rabobank.
“Given where the prices are, how is anyone going to tell Russia that it needs to reduce production?” said Jim Mitchell, head of oil analysts for the Americas at Refinitiv.
There are several good reasons for OPEC + to release more barrels.
First, higher prices mean that countries like Saudi Arabia, which depend on oil to balance their budgets, can generate badly needed revenues.
Bank of America strategists told customers in a recent note that OPEC + will “preserve market share” by increasing more soon. 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’s too late: self-preservation.
If gasoline prices continue to rise and reach $ 3 a gallon – and beyond – that will only accelerate clean energy investments and persuade more drivers to throw their gasoline-consuming SUVs in electric vehicles.
“If oil reaches extreme levels,” said Rabitzank’s Fitzmaurice, “it only helps in the history of renewable energy and erodes the demand for oil.”
Switching to electric means more expensive recalls
The numbers: the recall will cost Hyundai 1 trillion Korean won, or $ 900 million. On a per vehicle basis, the average cost is $ 11,000 – an astronomically high number for a recall.
The episode signals how defects in electric cars can create high costs for automakers – 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 in relation to the cost of the entire car. Until the cost of batteries decreases, through greater world production and economies of scale, the cost of making electric vehicles will remain higher than comparable gasoline cars.
Once batteries become less expensive, as expected in the coming years, electric cars can become much cheaper to build because they have fewer moving parts and require up to 30% less labor hours for assembly compared to traditional vehicles.
Fewer parts in electric vehicles could also mean that auto recalls will become less common in the future. But, for now, there can be significant costs if battery fire problems require replacing the battery.
Next
Monday: US ISM manufacturing index
Tuesday: Profits from Target, Kohl’s, AutoZone, AMC Entertainment and HP Enterprise
Wednesday: US ISM non-manufacturing index; EIA crude oil stocks; Earnings from Dollar Tree, Stellantis and American Eagle
Thursday: OPEC + meeting; US unemployment claims; Kroger, Gap and Costco earnings
Friday: US jobs report for February; Large batch earnings