With the OPEC+ seeing eye to eye to a one-month extension in the preliminary agreement, reactive oil market traders are reading between the lines.
Traders are now thinking the critical risk for markets from here will be how US shale producers respond to the rebound in oil prices.
Although Brent traded through $40 as the price recovery came on sharper and faster than most had expected, it was helped along by the perceptible dodging of filling physical storage; an inclination to focus on demand as economies emerge from mobility restrictions, the OPEC+ cuts, and the non-OPEC economic shut-in and curtailments.
And the expectation that OPEC+ would extend their current level of product compliance for 2 or 3 months.
But a funny thing happened on the way to the forum as OPEC + has reportedly reached a preliminary agreement to meet the markets bare bone expectations by extending the production agreement by one month.
Presumably, this is to allow a review of the May supply/demand data as one of the main challenges for OPEC + is the availability of hard data to judge the market in terms of OPEC+ compliance and non-OPEC production curtailment or underlying demand recovery before committing to a lengthier extension.
This seems entirely sensible, but with the Oil markets susceptible to any negative news, this has spooked the markets a touch as reactive oil traders are now reading between the lines.
The main problem for OPEC+ is not so much compliance from small producers, rather its the potential for shale production to rebound. Even more so, after both EOG and Parsley Energy flagged earlier in the week, they were preparing to restore shut-in production in the wake of the sharp rally in WTI.
Indeed, it might very well be that the sharper price recovery has raised some concerns among OPEC+ producers that highly price agile US producers will turn on the taps quickly and eat into OPEC + share of the pie.
So now the critical risk for markets from here will be how US shale producers respond to the rebound in oil prices.
Still, lingering in the background is a plethora of traders who are universally concerned that sentiment for oil is running ahead of the fundamentals, so any red flashing headlines will be viewed as an opportunity to fade the rally.
Oil markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp