Oil bounced again briefly today in yet another one day wonder round-trip.
The bounce and decline was related to a meaningless agreement between Saudi Arabia and Russia to Freeze Oil Production.
Catch #1: It’s only a freeze, not a cutback
Catch #2: All the rest of OPEC has to go along
Catch #3: Russia is producing as much as it can, so a freeze by Russia contributes nothing
Mohammad bin Saleh al-Sada, Qatar’s energy minister, said the deal was still contingent on other major producers agreeing to join the freeze, which will probably complicate efforts.
Bijan Zanganeh, Iran’s oil minister, said the country would not give up its share of the market, according Iranian news agency Shana. The country has only just started raising exports following lifting of sanctions last month.
All Hype, No Substance
The Financial Times commented “The deal still marks the first significant supply agreement since Saudi Arabia led the cartel in maintaining production in November 2014.”
Pray tell, how is this non-agreement significant?
The oil price reaction was as one might expect with all hype and no substance.
Oil 30-Minute Chart
There’s yet another one day wonder rally in oil.
Oil Daily Chart
For months on end, no bounce has lasted more than a week.
This time there’s a possible double bottom near 26. Will that hold?
I don’t know, nor does anyone else, but I see no reason to be short oil here.
Barring pending bankruptcies (and there may be lots of them), the oil sector is a reasonable place to be for the long term. How painful things get in the meantime remains to be seen.
Mike “Mish” Shedlock