OPEC Set to Cap Production: ProShares Ultra DJ-UBS Crude Oil (NYSEARCA:UCO)

In oil circles, when OPEC announces an unscheduled meeting it might as well be called an emergency meeting.  Although the upcoming meeting in Algeria on September 26 is not coined as being an emergency meeting, there's clearly an apparent need for OPEC to me before its next scheduled meeting in November.  In the past, when unscheduled meetings like this took place something happened.

Earlier in the year it was rumored that OPEC was attempting to cap production in an effort to stabilize oil prices, but tensions between Saudi Arabia and Iraq foiled that attempt.  Still, after that meeting, oil prices did increase, and quite aggressively, but they did not hold those gains. 

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The concern in oil circles is that the supply glut still exists, and so long as it does prices are not likely to increase, or at least not likely to hold their increases.  The swoon that has happened in the middle of this year has reminded OPEC of the tensions it felt early in the year, and with Saudi Arabia considering an IPO incentives to compromise with Iran exist now where they did not before.

To put the swoon into perspective, ProShares Ultra DJ-UBS Crude Oil (NYSEARCA:UCO) fell by 45% in less than two months between early June and early August, and the market quickly remembered what happened early in the year. 

With more bullish bets having been  placed on oil prices than ever before in history leading up to that June peak, it was almost as if investors forgot about the problems underlying oil prices, namely oversupply.  The swoon, however, has proven that the supply glut still exists, and OPEC is now more seriously considering a production freeze.

Saudi Arabia has clear incentives to act, they are willing to negotiate with Iran according to reports, and the rest of OPEC has already offered positive communication in support of a production freeze, so the upcoming unscheduled meeting very easily could result in action to support oil prices.

The one powerhouse that has not seemed to support a production cap is Russia, but they had supported such action previously so they could, arguably, be convinced to do so again.

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