Waiting for OPEC: changing circumstances and new possibilities maybe

For the better part of the past two years, the operative words for OPEC watchers have become "just in case."

And so it will be this week when the Organization of Petroleum Exporting Countries gathers informally on the sidelines of a conference in Algeria. The consensus view is that nothing of substance will come from the meeting no freeze, cut or cap on production but that doesn't mean the oil world is ready to dismiss the talks as mere theatre.

• Don't hold your breath for Saudi-led push to cut output

The likelihood that physical oil supplies will remain unchanged, regardless of what happens in Algiers, will lead to more musing that OPEC's machinations are nothing more than a hollow effort to jawbone oil prices higher. That may be the case for the time being, but to surmise that a lack of action means OPEC is a spent force would be shortsighted.

Where there's smoke there's fire?

For Canada and other countries that still see their fortunes rise and fall with the price of oil, the recent surge in OPEC-related chatter Saudi Arabia meeting with Russia, Venezuela with Iran, as well as the Algeria gathering itself suggests the sleeping giant of the global oil market is getting restless.

Which isn't to say that OPEC is about to cut a deal to curtail output and boost prices, just that circumstances are now different enough for the cartel to at least consider the possibility.

"We're definitely closer than we were a year ago to at least being able to have a constructive discussion about production," said Jamie Webster, a fellow at the Center on Global Energy Policy at Columbia University.

Baby step though this may be, anything that holds the potential to send oil prices up by $5 or $10 a barrel is music to the ears of Canada's downtrodden energy industry, not to mention governments in Alberta, Newfoundland and Ottawa that would see billions in extra revenues come their way if oil prices pop.

As ever, any decision by OPEC must first make sense for Saudi Arabia, which spurred the drop in oil prices in 2014 by abandoning its strategy of curtailing output in favour of securing market share. In the face of rising production from the U.S. and fellow OPEC members, the Saudis committed to selling as much oil as they could rather than lose customers to the competition.

Now, though, the production growth of big crude exporters like Iraq and Russia is slowing down, while a post-sanction Iran is also nearing the roughly four million barrels a day it churned out prior to its output being slashed.

"If you don't have anything else left, then you're more willing to say 'well, let's talk about stopping production, because I wasn't going to grow anyway,' " said Webster.

The wildcard for the Saudis is U.S. shale production, which has stayed doggedly high despite oil prices falling from $100 US a barrel to their current range in the mid-$40s.

The Saudis remain concerned that any action by OPEC to send prices into the $50s or $60s could result in a rapid production increase in the U.S. that would effectively kill any price rally.

How much U.S. shale producers could actually pump out and how quickly that might happen remains an unknown that OPEC, at some point, may want to test. Beyond that, the plunge in prices that sent oil to $28a barrel at its low has already achieved a number of Saudi objectives, including the derailment of megaprojects in places like Canada's oilsands that now no longer present the same long-term competitive threat to future OPEC production.

All talk isn't cheap

In the lead-up to this week's gathering in Algiers, oil prices have risen with every hint and whisper that OPEC could be getting more serious about changing course. Even if they don't believe that anything substantive is on the way, traders and short sellers, in particular will send prices higher out of respect for the potential that something could happen.

"It's because they're afraid," explained Andy Hecht, a market analyst and former commodities trader. "When they do finally do something, the move will be explosive."

With prices now stabilized between $40 and $50 US, OPEC may now have enough breathing room to, once again, think more strategically about how a production-related move might pay off in higher oil prices.

Before that happens, however, OPEC nations must believe other countries in the cartel will honour any agreement for coordinated action. The recent flurry of activity among members could be an effort to restore a trust that's been mostly lacking since their last big deal fell apart nearly a decade ago.

In that light, the likelihood that nothing will happen in Algiers doesn't mean that nothing is happening.

At some point, OPEC is bound to decide that higher oil prices are in its best interests. Until then, as ever, the oil world will keep watching just in case.