It is about more than the barrels. Although the fundamental impact is very important, the real significance of the agreement is that Saudi Arabia and OPEC have returned to active market management.

This is what put a $50 floor under prices immediately after Vienna.

We expect OPEC to roll over its production target in 2H17.

We also expect OPEC to hold actual production flat at 32.0 Mb/d for the rest of the year.

Remember, global demand expected to increase by 1.8 Mb/d from 1H17 to 2H17.

OPEC does not want to cut production too much and push up prices too fast. The risk is that US shale output grows even more quickly than forecast.

It is critical for OPEC that the oil markets see it is continuing active supply management.

The numbers may change, depending on inventories and other fundamentals.

Healthy global demand growth. US supply growth leads recovery in non-OPEC.

But OPEC cuts more than offset US growth. Why? There is a mismatch.

The OPEC cuts are taking place now and they are bigger (1.2 Mb/d).

The US crude supply recovery is felt mainly in the second half and is smaller (0.7 Mb/d).

Assuming OPEC holds output flat in 2Q17-4Q17; stocks will draw by 1.0 Mb/d.

What we said in mid-March (during the price correction) still holds: “very short term: combined US trends of higher crude runs/lower net crude imports should result in US crude stocks flattening out and then starting to decline by the end of April”.

The road ahead for crude prices:

Brent / WTI will average $57.50 / $55.50 in 2Q17, increasing to $62.50 / $60.50 in 4Q17.

Annual average Brent / WTI $58.90 / $56.70.

Hedging strategies to arrest bullish risks:

We’ve already advocated below option strategy to keep above forecasted bullish price risk on check.

Keeping the both fundamental and technical factors in mind, it is advisable to go long in 1M (1%) OTM 0.36 delta call while writing 1W (1%) ITM call with positive theta and delta closer to zero (both sides use European style options), this credit call spread option trading strategy is recommended when the underlying spot FX price is anticipated to drop moderately in the near term and spikes up in long term.

The return is limited by ITM shorts. No matter how far the market moves below that point, the profit would be the maximum to the extent of initial premiums received.