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Members of OPEC are scheduled to meet with Russia in Algiers on Wednesday to once again discuss a coordinated effort to stabilize the oil market. That meeting marks OPEC's third attempt this year to discuss stabilizing actions, which thus far have ended in failure. Because of those past failed attempts, the market does not expect any action next week. In fact, just two of the 23 analysts surveyed by Bloomberg expect any agreement. However, while the market is discounting any action from OPEC, its members seems to be signaling that they are finally ready to act. That could be setting the oil market up for a big surprise this week.

The meetings before the meeting

Last week OPEC members -- and bitter rivals -- Saudi Arabia and Iran met at the cartel's headquarters in Vienna. They did so try to come to a consensus on a deal to freeze output in advance of this week's meeting with Russia. It is an attempt to avoid the same fate of the Doha meeting in April, where a similar deal fell apart at the last minute. That 11th-hour collapse was the result of Saudi Arabia's insistence that Iran also freezes its output, which it refused to do given that it was just starting to revive exports after the lifting of Western sanctions.

The meeting between Saudi Arabia and Iran was just the latest in a string of meetings around the global to build consensus before this week's conference. Earlier this month, the energy ministers of Saudi Arabia and Algeria met with OPEC's top official to discuss the upcoming meeting in Algiers. Meanwhile, Algeria's energy minister recently met with Russia's energy minister in Moscow to discuss ways of stabilizing the oil market.

While these meetings do not seem to be swaying analysts, OPEC members are at least publicly growing more optimistic that a deal can get done. For example, Iraq's OPEC governor Falah Al-Amri said that "this is the right time" for an agreement. Meanwhile, non-OPEC member Russia's energy minister stated that his country was ready to cap output at the level of any month during the second half of this year. That said, given that Russia has delivered record production volumes recently, capping at that level would not exactly help the oil market glut. Still, the openness toward a deal would seem to increase the likelihood that producers are serious about getting something hashed out this week. 

OPEC and oil stocks

If OPEC does indeed announce an agreement, it could drive oil prices higher next week. Moreover, if it said that it would do more to support the market in the future such as returning to production quotas, prices could rocket higher. That scenario could potentially put a floor under oil prices, providing visibility for producers to plan future investments. 

The biggest beneficiaries of that scenario would be financially weaker producers like Whiting Petroleum (WLL) and California Resources (CRC), which desperately need a stable oil price environment to thrive. Whiting Petroleum, for example, is currently deferring all well completion activities at its Redtail development area in Colorado through the end of this year due to uncertain market conditions. As a result, Whiting Petroleum projects to have 117 drilled uncompleted wells by the end of this year. However, if market conditions improve due to stabilization from OPEC, Whiting could start bringing some of those wells on line to collect the higher cash flows from improving oil prices.

California Resources, on the other hand, did not drill a single well last quarter and has not drilled any this year. That said, the company is planning to increase its level of capital spending in the second half to reduce its production decline rate. Furthermore, California Resources could increase spending even more and resume drilling if "crude oil prices show sustained improvement," which could happen if OPEC acts next week. That improving outlook could signal the all clear to investors that Califonia Resources is going to make it through this downturn. 

Investor takeaway

Few in the market believe OPEC will come to an agreement this week. Because of that, oil prices could spike if it surprises, likely sending oil stocks soaring. That is because a move to stabilize the oil market could give investors more clarity that oil companies can once again start reinvesting back into their businesses without the fear that oil prices could take another sharp turn lower.