U.S. oil producers are betting that crude prices will stay low well into next year, hedging some of their production at around $40 a barrel in 2021.
Exploration and production companies have so far hedged 41 percent of their forecasted 2021 oil output at an average West Texas Intermediate price of $42 a barrel, 25 percent lower than this year’s hedged price floor of $56 per barrel, according to Rystad. The hedge is in line with current crude prices, which are hovering around $39 a barrel as of Tuesday morning.
Oil companies use various contracts, such as futures contracts, to hedge their production to lower their risk in a volatile commodity market. This ability to lock in a minimum price for their oil in advance of production allows them to weather the boom and bust cycles.
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Rystad, a Norwegian energy research firm, analyzed 20 U.S. oil companies that have shared their hedges for 2021 as of early October. These companies represent about a third of the expected U.S. shale oil production this year.
Most oil companies have hedged between 20 percent and 60 percent of their 2021 crude production. Marathon Oil has less than 20 percent of its 2021 production hedged while Parsley Energy has hedged more than 60 percent of its production next year.
Rystad expects oil companies to increase its share of hedged oil production in the coming months.
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October 27, 2020 at 08:10PM
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U.S. oil producers bet on $42 oil prices in 2021 - Houston Chronicle
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