Oil producers are using the current rally to hedge barrels, but not at desired price levels. The Wall Street Journal reports on some specific examples and mentions some of the difficulties in hedging here: http://www.wsj.com/articles/oil-producers-lock-in-once-snubbed-prices-1461490384
Here is one company’s recent experience:
“Last September, Energen Corp. officials told investors they would hold out for roughly $60 a barrel before using the futures market to hedge their production. But the company recently said it had locked in about half of its expected 2016 production—or more than 6 million barrels—at around $45.”
Hedging is tricky:
“A lot of producers have been reluctant to hedge, because the timing can be so tricky. Contracts can produce big losses on paper or lead to expensive margin calls when the market moves sharply.”
Hindsight is 20-20:
“Once optimistic gamblers, many are settling for prices just sufficient to cover basic costs and prove to lenders and investors they can live to fight another day. That task would have been easier if these companies had hedged more proactively a year ago.”
But, do read the whole article…
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