U.S. shale firms hesitate to hedge more, despite surge in oil prices

NEW YORK (Reuters) by Devika Krishna Kumar – U.S. shale producers promised investors they would keep a tight rein on spending in 2021, and the restraint on drilling has extended to their hedging strategies even as crude prices surged due to disarray among OPEC and allied producing countries. Oil demand is rebounding from demand destruction during the pandemic, but output has not kept up, boosting prices. Crude futures are above $73 a barrel, near three-year-highs, and some analysts believe oil could hit $100. In the past, shale firms boosted output and added to hedges as oil rallied, eager to lock in profits. Oil companies use hedging to guard against sudden price downturns. By buying or selling later-dated futures and options contracts, they guarantee a particular sale price at a later date. However, the swiftness of the post-pandemic rally has caused U.S. shale companies to back off from hedging after a flurry of activity in early June. U.S. shale executives told Reuters they are maintaining the same wait-and-see attitude towards hedging that they are towards increasing output. “With every bank saying that oil will be at $90-$100, no one is going to put hedges on right now,” said an executive at a shale… continue reading

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