The announcement of an informal OPEC meeting in Algiers at the end of September has coincided with a reversal in Brent crude oil’s losses since July.

On the side-lines of the International Energy Forum, a biennial gathering of energy ministers, the meeting has fuelled speculation that the world’s major crude oil producers may agree with a freeze or quota on output.

Still, it is hard not to be sceptical after similar talks in Doha failed in April. Spooked by the dip in prices over the summer, Venezuela, and Ecuador, two of OPEC’s most financially vulnerable members are lobbying the hardest for action.

An OPEC strategy aimed at grabbing market share rather than supporting prices has led to a large fall in major oil producing countries spare capacity. Estimates for this July put OPEC spare capacity at 3.6 mb/d compared to 6.6 mb/d in July 2014.

Increased output from Saudi Arabia, Iraq, and Iran have over the last two years accounted for much of the sharp drop in capacity. Outside of OPEC, Russia, the world second largest producer of crude oil is also pumping at record high levels and is unlikely to raise output much higher.

Iran, on the other hand, remains the biggest wild card when OPEC meets in September. The pace at which Iran can increase output beyond pre-sanction levels remains unclear. Years of underinvestment may have significantly reduced the speed at which production can grow over the coming two years. New oil contract terms are being drawn up in the hopes of attracting $50bn a year of new investment.

Thus far post-sanction contract offers have failed to attract a single new investment. In the interim, that has not stopped the Iranian government from setting some bold production targets. The latest is to drive output above 4.6 mb/d over the next five years. For now, Bloomberg estimates suggest that Iran’s production capacity is somewhere around 4 mb/d.

Consequently, the large option position and delta hedging left the market vulnerable to a rally. The market had built up sizeable WTI put positions for Sep at $40 and $45, which had recently come into or near the money. As these options gain or fall in value, traders/dealers need to buy and sell a corresponding number of contracts to hedge their exposure (the delta value). These delta values tend to rise quickly as contracts approach the money.

Crude oil for October delivery on the NYME dipped 77 cents, or 1.57%, to trade at $48.34 a barrel by 07:55GMT.