Investors are betting the pandemic will soon be under control — and that in turn will unleash pent-up demand for road trips, cruises, flights and other oil-consuming activities.
“Given the allure of higher prices, there should be more supply coming onto the market,” said Ryan Fitzmaurice, energy strategist at Rabobank.
“Given where prices are, how will anyone tell Russia that they need to curtail production?” said Jim Mitchell, head of Americas oil analysts at Refinitiv.
There are several good reasons for OPEC+ to release more barrels.
First, higher prices mean countries like Saudi Arabia that rely on oil to balance their budgets can bring in badly-needed revenue.
Bank of America strategists told clients in a recent note that OPEC+ will “preserve market share” by pumping 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’s another reason OPEC+ will want to act before it’s too late: self-preservation.
If gasoline prices keep rising and hit $3 a gallon — and beyond — it will only accelerate clean energy investments and persuade more drivers to dump their gas-guzzling SUVs for electric vehicles.
“If oil shoots up to extreme levels,” said Rabobank’s Fitzmaurice, “that only helps the renewables story and eats away at oil demand.”
The switch to electric means more costly 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 electric car defects could create hefty costs for automakers — at least in the near future, report my colleagues Chris Isidore and Peter Valdes-Dapena.
The recall is another indication of just how expensive EV batteries are relative to the cost of the entire car. Until the cost of batteries comes down, through greater production worldwide and economies of scale, the cost of making electric vehicles will remain higher than comparable gasoline cars.
Once batteries do 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 as much as 30% fewer hours of labor for assembly compared to traditional vehicles.
Fewer parts on electric vehicles could also mean that auto recalls become less common in the future. But for now, there could be significant costs if battery fire problems require battery replacements.
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 inventories; Dollar Tree, Stellantis and American Eagle earnings
Thursday: OPEC+ meeting; US jobless claims; Kroger, Gap and Costco earnings
Friday: US jobs report for February; Big Lots earnings