the oil two-step, one step forward . . .

US oil producers lock in high prices - FT.com

. . . one step back.

Crude oil slides back below $40 a barrel - FT.com

"But many analysts believe that the advance has gone too far too fast and are tipping the price to fall back, with supply still expected to outstrip demand for most of 2016. On Monday, Brent fell as much as 3.5 per cent to $38.82 a barrel, while West Texas Intermediate, the US oil benchmark, was down 4.5 per cent to $36.69 a barrel."

Reality is a bitch. The US is approaching 100% full storage, and the use of train cars as "rolling storage." We are knee deep in oil, and yet the oil bulls still rampage at the merest flicker of hope of a rally.

"Saudi Arabia, Opec’s biggest producer, and Russia agreed last month to freeze oil output at January levels, but only if other large producers such as Iran and Iraq agreed to do the same.

Speaking on Sunday, Iran’s oil minister Bijan Zanganeh said that the country would only join discussions after its own output, which has been hit hard by western sanctions, reached 4m b/d.

“They should leave us alone as long as Iran’s crude oil has not reached 4m. We will accompany them afterwards,” Mr Zanganeh was quoted as saying in local media.

Iran pumped 3.22m barrels a day in February, in the first full month freed of nuclear sanctions, according to the International Energy Agency. Exports rose to 1.4m b/d but are still well below the 2.5m b/d Iran was selling before 2011."

In this environment, a rally is beyond comprehension. I suspect the bulls are being shorn with each of these absurdist attempt to re-blow the oil bubble. 

"The International Energy Agency said last week that prices might have “bottomed” and there could finally be light at the end of tunnel, following a 20-month downturn.

However, other commentators believe the recent rally could contain the seeds of its own destruction. Higher prices have thrown a lifeline to cash-strapped US shale producers which are taking advantage of the recent rally to lock in prices."

The fear and loathing in the oil markets is palpable. The US shale producers will likely continue to find ways to decrease costs, and increase output. Many will find these low prices fatal, yet either through bankruptcy or liquidation and repurchase of assets, they will phoenix like rise ready for the next rally. The oil tyranny's, however, will find this market existential. Add, proxy wars within OPEC, and this should be a show stopper!

Grab some corn, and beer, this might take a while.