The price of oil rose sharply last week to nearly $40 a barrel, presumably based on two pieces of information: falling rig counts in the United States and the announcement that major international oil exporters Saudi Arabia, Russia, and Venezuela would freeze oil production if other oil producing countries agreed to the same. The rally seemed genuine enough that even the IEA stated in its March monthly oil reports that, “there are signs that prices might have bottomed out.”

The problem with this oil rally (which already proved transient) is that the forces that drove oil up to $40 are not really indicative of a change in the oversupplied market.

Oil rig count in the United States has been dropping steadily in 2016, while oil production has remained steady. Rig counts are released weekly but do not provide a good indication of oil production in the United States, because the rate of production from rigs already in use has climbed steadily. Oil storage facilities present a much more accurate indicator of the amount of crude oil in the U.S. These storage facilities are so fully stocked that overflow is being stored in railcars. The significance of this cannot be understated – there is so much pumped oil in the United States that there is nowhere to put it. Even ending the oil export ban has not helped because the global market is nearly as over supplied as the U.S. market, and U.S. oil is struggling to find outlets internationally.

When it comes to the so-called “production freeze,” the truth is that the market should have known better. Talk of an agreement to hold oil production at current levels has been floating around since the beginning of 2016, and every time Russia, Saudi Arabia, Venezuela, Iraq, Qatar, the UAE, Oman and others meet secretly in some combination the same theme emerges. It goes like this: the big producers will only agree to a freeze (not a cut) if everyone else – including wild-card Iran – agrees as well.