Oil prices have been driven higher and shorts in the futures market have been squeezed out with just the whiff of an OPEC meeting and this has in turn made it more unlikely that any action would be taken by the cartel.

The Organization of Petroleum Exporting Countries is scheduled to meet informally on the sidelines of an energy conference in Algeria late next month and despite the above mentioned market developments, chatter about a revisit of the idea of a production freeze by OPEC has not stopped.

If crude plummets again, some OPEC members could curb their bickering and consider joint action even as oil’s recent dip back into the $30s per barrel may be enough to get them do just that. With the more needy members pushing for relief through a freeze or other deal, for now, analysts see the cartel just talking.

“They can change market sentiment by signaling they’re going to be more engaged. They changed the conversation again. It’s basically a little smoke and mirrors,” said Helima Croft, RBC’s head of commodity strategy.

Oil plunged briefly back into bear market territory last week, after recovering from the winter’s lows. At the same time there were reports of the possible OPEC meeting on the sidelines of an energy conference in Algeria in late September.

Oil prices rose nearly 3 percent after the meeting was confirmed by OPEC President Mohammed bin Saleh al-Sada, Qatar’s energy minister, on Monday. Ahead of API inventory data and as Russia showed no interest in meeting with OPEC, Weat Texas Intermediate settled lower Tuesday at $42.77 per barrel.

As U.S. refiners pare back operations for seasonal maintenance, analysts said that another steep drop in prices can be expected in the next two months and that might make OPEC members discuss action.

“OPEC signaled that they’re waiting in the wings and they confirmed the floor by changing the conversation. There are a lot of shorts. We exceeded the February short position last week. They can accelerate the short covering rally. They’re a catalyst,” said Croft.

The market has been coming into balance Croft believes. “Our view is the market is oversold at this point,” she said.

OPEC sees demand picking up in the third and fourth quarter, it said while announcing the meeting. The recent decline in oil prices and market volatility is “only temporary,” al-Sada also said in the cartel’s release.

“These are more of an outcome resulting from weaker refinery margins, inventory overhang — particularly of product stocks, timing of Brexit and its impact on the financial futures markets, including that of crude oil,” al-Sada said.

He does not agree the latest dip into the upper $30s means a floor has been set, said John Kilduff, founding partner of investment management firm Again Capital. Crude could be close to reaching its bottom at the time of the Sept. 26 energy ministers meeting.

“That could be the low point of an oil price decline,” said Kilduff.

However once demand picks back up, he says, oil could start to move higher later in the fall.

“The rebound we’re seeing right now is a function of the record short position that got built up in this market,” said Kilduff.

“The word ‘cut’ is not being mentioned anywhere and ‘freeze’ is not anywhere. The ‘freeze’ in OPEC is that everybody’s ice cube freezes at a different temperature. At Doha, a lot of the language was very vague,” says Bhushan Bahree, senior director, IHS Energy

(Adapted from CNBC)

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