RigData Insights

American Shale Companies' Rush to Hedge Is Turning the Oil Market Upside Down

  • Monday, December 5, 2016
  • Posted By Meagan Wildfong

120516Source: Bloomberg.com | Javier Blas, Alex Longley & Alex Nussbaum

 

U.S. shale oil companies are using the post-OPEC rally to hedge their oil price risk for next year and 2018 above $50 a barrel, bankers, merchants and brokers said, pushing the forward oil curve upside down.

 

The rush to hedge -- locking in future cash flows and sales prices -- could translate into higher U.S. oil production next year, offsetting the first output cut by the Organization of Petroleum Exporting Countries in eight years. As such, the producer group could end up throwing a life-line to a sector it once tried to crush.

 

“Right after OPEC, U.S. producers were very active hedging," said Ben Freeman, founder of HudsonField LLC, a boutique oil merchant with offices in New York and Houston. "We are going to see a significant amount of producer hedging at this levels."

 

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