The squeeze higher in oil prices last week amid renewed speculation that key producers would convene to discuss potential output cuts caught many market participants by surprise especially in light of prevailing conditions in the energy sector. In spite of prices retreating from recent highs once more, there remains a growing chorus of investors, traders, and speculators expecting oil prices to rebound further from current level levels even with the multitudinous risks facing crude. Aside from high production levels that have remained high amid weak pricing, the demand side of the equation continues to show sluggish growth at very best, onshore inventories continue to fill and an ongoing price war threatens to exert undue pressure on marginal oil producers.

Buy The Rumor, Sell The News

In typical fashion, rumors hit the tape last week of an imminent meeting of major producers to discuss the potential for output cuts in an effort to help restore higher prices in crude oil. Initially, comments from Russian Energy Minister Alexander Novak appeared to show the willingness of Saudi Arabia to discuss reducing production, rumors later denied by both Saudi Arabia and OPEC, with no expectations of an emergency meeting being called. With unconventional oil production still intact despite weaker pricing, the Saudi’s will have no choice but to remain entrenched in the war for market share for longer, especially now that Iran has rejoined the energy export economy.

After years of crippling sanctions, expecting key market participants such as Iran to come to the table to discuss potential production cuts to support prices is highly suspect. The two main OPEC powers, Iran and Saudi Arabia continue to trade barbs back and forth, with on accusing the other of destabilizing the market intentionally. As such, the number of denials of the February meeting to deliberate output were enough to confirm that the rumor remains just that. Furthermore, based on the lack of action and the squeeze higher in prices during the prior week on no news, this was merely an opportunity to sell or reestablish short positons, not necessarily a turning point in the market.