Oil prices plunged lower on Tuesday after Kuwait said it was not willing to agree to an output freeze unless all major producers join in and Goldman Sachs analysts cast their doubts over the prospects for a sustained rally.
“If there is an agreement, Kuwait will commit to the freeze,” Anas Al-Saleh told reporters in Kuwait city.
Brent crude futures fell 12 cents at $40.72 a barrel at 0922 GMT, hovering above the $40 mark it last traded at three months ago. On Monday the contract had climbed by 5.5 percent in intra-day trading and it has gained about 50 percent since Jan. 20.
U.S. West Texas Intermediate (WTI) futures were down 10 cents at $37.80 a barrel.
“Prices are lower on the Goldman Sachs and Kuwaiti comments and the oil market remains oversupplied,” said Tamas Varga, oil analyst at PVM in London.
Kuwait’s oil minister said on Tuesday that for his country to participate in an output freeze, all major oil producers, including Iran, should be on board.
Asked what would happen if not all producers agreed to join in the pact, al-Saleh told reporters: “I’ll go full power if there’s no agreement. Every barrel I produce I’ll sell.”
OPEC member Kuwait is currently producing 3 million barrels of oil per day, he added.
On Monday the Ecuadorean government said that Latin American oil producers would meet on Friday to coordinate a strategy to halt the crude price rout.
Goldman Sachs said in a report published on Tuesday that a recent surge in commodity prices was premature and unsustainable.
“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.”
On the demand side, China’s crude imports jumped 19.1 percent between January and February to 31.80 million tons, or about 8 million barrels per day, in spite of overall feeble trading figures released on Tuesday.
“Higher ‘teapot’ (independent refinery) demand and stronger refining margins … have contributed to increased imports. Falling domestic crude production is also supportive,” said Virendra Chauhan of Energy Aspects.
Oil demand has been rising, yet the sustainability of growing consumption remains questioned especially as 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.