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Back in late February, when crude prices had just hit a 13 year low, one catalyst unleashed a furious short-covering rally: a WSJ report which cited a delayed SkyNews interview with the UAE energy minister, according to which OPEC would freeze, if not cut production. Since then we learned, courtesy of the Saudi oil minister Al-Naimi himself, that the Saudis will never reduce output, however, in a utterly meaningless gesture, Saudi Arabia and Russia agreed to "freeze" production at levels which are already at maximum capacity and under one condition: that all other OPEC members join the freeze, with the possible exception of Iran which may be allowed to produce until it hits its pre-embargo export levels.
Of course, even the said "freeze" is nothing but a stalling tactic employed by an OPEC member (Saudi Arabia), to give the impression that OPEC still exists as a production-throttling cartel when OPEC ceased to exist in that capacity in November 2014. Everything since then has been one surreal redux of "Weekend at Bernies" where everyone pretends not to notice the corpse in the room.
However, while many had pretended to at least play along with the charade, today a core OPEC member effectively broke ranks when Kuwait said it would only agree to an output freeze if all major producers take part including Iran.
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According to Reuters, Kuwait's oil minister said on Tuesday that his country's participation in an output freeze would require all major oil producers, including Iran, to be on board.
"I'll go full power if there's no agreement. Every barrel I produce I'll sell," Anas al-Saleh told reporters in Kuwait City. And since Iran has made it very, very clear that it will not join the production freeze at its current mothballed output, and will need at least 9-12 months before it regains its pre-embargo capacity levels, one can forget about a production freeze well into 2017, if not forever, since by then at least one if not more OPEC members will be bankrupt (they know who they are: they are the source of those "ALL CAPS" flashing read headlines every day).
Putting Kuwait's production in context, Kuwait - the small Gulf state Saddam invaded 25 years ago - is currently producing 3 million barrels of oil per day. Incidentally, this is precisely how much the oil market is oversupplied each and every day, and why in addition to PADD1, 2 and 3 being almost full, and excess oil now being stored in ships, pipelines and trains, and re-exported to Europe, quite soon empty swimming pools will be full with the "black gold" as the algos continue to refuse to pay any attention to the constantly deteriorating fundamentals.
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Kuwait's announcement followed a report by Goldman overnight in which, as we reported, Jeff Currie said that the "commodity rally is not sustainable" and it is time to sell crude.
"While these dynamics (rising prices) could run further, they simply are not sustainable in the current environment," the analysts wrote. "Energy needs lower prices to maintain financial stress to finish the rebalancing process; otherwise, an oil price rally will prove self-defeating, as it did last spring."
Perhaps, but not just yet: in addition to China's abysmal exports, we also learned that in February its crude imports soared 19.1% to 31.80 million tons, or about 8 million barrels per day, an all-time high, suggesting China - like the US - is filling every available container including its SPR at a time when prices are relatively low even if organic demand continues to deteriorate.
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As Reuters writes, "despite strong oil demand, questions about the sustainability of growing consumption weighed on markets after China's overall exports tumbled by a quarter in February."
China's February vehicle sales, a key driver for gasoline demand, were down 3.7 percent year on year, data from the country's Passenger Car Association showed. "This is really a poor start for trade this year," said Zhang Yongjun, senior economist at the China Centre for International Economic Exchanges.
However, judging by the latest bounce in crude in the last hour of trading, the only thing that still matters is who the daily “short squeeze” will rip higher. By the looks of things, at least one major trader already got the tap on the shoulder.
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