These trends higher are driven by a combination of falling shale production, international supply outages, and an uptick in global demand. On the other side of the equation, OPEC’s increasing crude oil production threatens to cut the rally short and cap these gains as major oil producers stock up on potentially lucrative futures contracts.

In this article, we’ll take a closer look at the dynamics at play in the crude oil market and what traders can expect moving into the latter half of 2016.

The collapse in crude oil prices led many high-cost U.S. shale producers to exit the market. According to the U.S. Energy Information Administration, shale production is projected to fall 113,000 bpd to a total of 4.9 mmbpd between May and June. This represents the 15th straight week of declines in production as a growing number of U.S. energy companies file for bankruptcy protection as prices remain below their breakeven points.

At the same time, Canada and Nigeria have experienced unexpected supply disruptions that could threaten to further constrict global supply. Nigerian production could fall to just 600,000 bpd – their lowest levels since 2009 – thanks to a number of pipeline outages. In Canada, the Alberta wildfires led to a dramatic fall in oil sands production. Citigroup analyst Seth Kleinman believes that these disruptions could reduce global supply by 3.5 mmpd.

There is of course an unremitting risk that OPEC will increase production in an effort to balance their budgets, particularly with countries like Iran still ramping up production. In its latest monthly oil market report dated May 13, the organization reported a 188,000 mpd increase in production to 32.4 mmbpd between March and April. Iran has been a primary driver of these production increases as its production levels have now exceeded pre-sanction levels.

In the end, falling production levels from supply disruptions may have been largely responsible for the significant increase in crude oil prices over the past couple of months. However, it’s uncertain how long these events will continue to impact the market as normalcy is restored. There’s also a risk that OPEC could continue to increase production in order to make up the short fall and cut the rally in crude oil prices short.

The EIA projects that worldwide crude oil consumption would rise from 90 mmbpd in 2012 to 121 mmbpd by 2040, driven largely by non-OEDC economies in Asia. While the organization expects the oversupply to keep prices low through at least 2017, they acknowledge a number of different factors that could bolster prices, including Iran’s return to the market, potential reforms in Mexico, and OPEC’s difficult-to-predict maneuvers.

Over the near-term, there are also signs that demand could be rising faster than many analysts had expected. The EIA’s May 11 weekly report showed U.S. crude oil inventories that unexpectedly fell by 3.41 million barrels during the week ended May 6, while gasoline inventories fell 1.231 million barrels and distillate stockpiles fell 1.647 million barrels. These kinds of short falls have become increasingly common in recent months.

These surprises may have contributed to crude oil’s recent upside, but there’s still a dramatic oversupply in the market. According to the EIA’s May 6 report, crude oil inventories remain at 540 million barrels, which is 11.4% higher than the same period a year ago and near an 87 year high. These dynamics have lifted many shipping companies as crude oil producers are force to store oil at sea after filling up all available land storage venues.

According to Bloomberg, many oil producers have taken advantage of the rebound to lock in crude oil prices at high levels. These producers extended their bets that prices would fall to their highest levels in four and a half years. If oil prices fall, these hedges could gain in value to help offset the impact of lower prices on their operations in much the same way that airlines hedge against jet fuel prices to manage their risk.

Crude oil prices have rebounded sharply from their lows made earlier this year, but the rally has been driven largely by temporary factors. On a fundamental level, crude oil supply remains near 87 year highs and many oil producers are hedging against a downturn. Some analysts believe that constricted supply – including a drop in U.S. shale production – will continue to put upward pressure on prices as demand continues to surprise to the upside.