US shale oil companies are hedging against future price declines as West Texas Intermediate enjoys a recovery of more than $ 50 a barrel, Reuters reports, citing unknown sources.
Crude oil prices slowly recovered during the last quarter of last year, and they jumped sharply earlier this month as vaccine roll-out progressed, albeit slowly, in the United States and Europe. At the same time, Saudi Arabia pleasantly surprised the oil markets by stating that it would save an additional 1 million barrels per day on its production, on top of the cuts agreed with OPEC +.
As a result, WTI hit its all-time high since February last year and was trading at more than $ 52 a barrel at the time of writing. Brent crude recovered to above $ 55 a barrel.
According to the Reuters report, short positions on oil contracts in the futures and options markets opened by producers have risen since last fall, hitting a five-month high in mid-December. They may have continued to rise this month as oil benchmarks improved further.
According to Reuters sources, optimism is growing in the industry, who said some shale producers are waiting for prices to get even higher before locking production to the market.
“Some of them (producers) are pretty torn between hedging at a level that would have killed them six months ago and their perpetually optimistic nature,” Steve Sinos, vice president at Mercatus Energy consultancy, told Reuters.
However, according to forecasters and the industry itself, production growth in the shale region is unlikely in the short term. Despite the optimism, whether it be perpetual or temporary, shale companies are wary of another price drop, despite cuts in OPEC +, and are taking a cautious stance. Right now they are targeting free cash flow, Reuters sources also said.
By Irina Slav for Oilprice.com
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