Jun
20

Oil Producers Stop Hedging as Low Prices Lure Ships, Planes

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  • SocGen sees changing dynamics in producer and consumer hedging
  • Lower oil prices may deter future shale oil investments

The past month’s plunge in oil prices has turned the market for hedging upside down.

Oil producers have scaled back locking in future prices “considerably” since February, Societe Generale SA said in a report, citing a shift in options pricing driven by consumer companies like shippers and airlines. Late last year, sellers including U.S. shale drillers locked in prices in droves when benchmarks rose after OPEC announced plans to cut production.

“This is a significant shift in the relative producer-consumer hedging behavior,” wrote David Schenck, a cross-commodity strategist at Societe Generale. “While consumers may try to lock in low prices, most producers will simply refuse to lock-in loss-making prices.”…

Oil Producers Stop Hedging as Low Prices Lure Ships, Planes

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Categories : Hedge Funds

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