US Shale Firms Revive Hedging as Oil Rebounds, May Vex OPEC
NEW YORK, May 1 (Reuters) – U.S. oil producers are rushing to take advantage of the rebound in oil markets by locking in prices for next year and beyond, safeguarding future supplies and possibly paving the way for a rebound in production.
The flurry of hedging activity in the past month will help sustain producers' revenues even if oil markets tumble again, which is bad news for OPEC nations, such as Saudi Arabia, that are counting on low prices to stunt the rapid rise of U.S. shale and other competitors.
Oil drillers are racing to buy protection for 2016 and 2017 in the form of three-way collars and other options, according to four market sources familiar with the money flows. In some cases, that means guaranteeing a price of no less than $45 a barrel while capping potential revenues at $70.
U.S. crude futures traded just below $60 a barrel on Thursday.
Implied volatility - a gauge of options prices - tumbled nearly 30 percent this month to a four-month low reflecting increased options selling.
"A lot of producers that have hedges on for 2015 are under-hedged for 2016," said John Saucer, vice president of research and analytics at Mobius Risk Group. The crude's rally from six-year lows plumbed in January and easing option premiums have opened a "great opportunity" to buy extra insurance against a new slump, he said.
Analysts tracking hedging say that U.S. shale producers are protected as much as 50 percent less in 2015 compared with 2014. With new hedges now, producers have found an opportunity to maximize cash flow by selling calls and protecting the downside. (Graphic: http://link.reuters.com/vaq64w)
View Full Article
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
- Weatherford CEO's Rebound Plan Relies On Getting Smaller
- Iran Says Oil Market Is Too Tight For US Zero Exports Target
- China's Squeezed 'Teapots' Eye Petchem Path To Riches
- Baker Hughes: US Drillers Add Oil Rigs For Second Week In Three
- Venezuela Hands China More Oil Presence, But No Mention Of New Funds