Oil dips in volatile trade on producer output freeze views

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By Karolin Schaps

LONDON (Reuters) - Oil prices edged lower on Tuesday in volatile trading after Kuwait said it would agree to an output freeze only if all major producers took part and Goldman Sachs analysts poured cold water on prospects for a sustained rally.

Brent crude futures were trading at $40.24 a barrel at 1442 GMT, down 60 cents on the day. Earlier in the session, the contract had climbed to a three-month high of $41.48, gaining more than 50 percent since its 2016 low on Jan. 20.

U.S. West Texas Intermediate (WTI) futures were down 75 cents at $37.15 a barrel.

"The market has run a little bit too far too fast," said Frank Klumpp, oil analyst at Stuttgart-based Landesbank Baden-Wuerttemberg.

"Expectations regarding production cuts are high, and so is the positioning of most traders and hedge funds. The potential for a surprise seems to be on the downside now."

OPEC members and other producers in Russia are due to meet for talks on propping up prices on March 20, according to the Nigerian petroleum minister.

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.

OPEC member Kuwait is currently producing 3 million barrels of oil per day (bpd), he added.

Analysts at Goldman Sachs said in a report on Tuesday that the recent price rally 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."

SEB chief commodities analyst Bjarne Schieldrop agreed, saying that U.S. shale oil rig numbers could soon rise again, halting the recent price rise.

A global supply glut that has brought prices down prices from highs reached in mid-2014 continues to weigh on the market.

North Sea crude supply is expected to rise to its highest in four years in April, holding above 2 million bpd for an eighth consecutive month, according to monthly loading programmes.

On the demand side, China's crude imports jumped 19.1 percent between January and February to 31.80 million tonnes, or about 8 million barrels per day, despite overall weak 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.

Despite that, 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.

(Additional reporting by Henning Gloystein in Singapore; Editing by Mark Trevelyan and David Evans)