US oil producers lock in prices after crude’s rally

27 Sep 2017   Prices, Shale Oil

North American oil producers have pounced on the recent rise in crude prices to lock in sales at current levels, something that could safeguard prospective shale output in the face of a future downturn. Bankers and brokers say hedging in the US and Canada has accelerated as West Texas Intermediate crude pushes above $50 a barrel, a break-even price for many shale oil companies. “There’s been more producer-hedging in the past two weeks than in the past four or five months,” a banker said. US crude prices this week climbed to a five-month high as petroleum demand booms, Opec curtails output and bloated inventories start to decline. Hedging could embolden US producers to raise volumes after putting the brakes on drilling in recent weeks. A flurry of selling could also cap rallies. Already, the rush to sell has affected futures prices. WTI for delivery in December 2019 now costs about a dollar less than the contract for delivery this December. A month ago it cost a dollar more. Independent producers often hedge through swaps and options transactions with Wall Street banks. These banks then offset their exposure with futures and options at the New York Mercantile Exchange and Intercontinental Exchange commodities bourses.

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