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Oil’s Low Prices Draw Rash Of Hedging

Last week’s crashing oil prices were awfully tempting last week for big oil consumers, who took advantage of the low prices to hedge against the inevitable price rise.

Major oil consumers such as airlines boosted their hedging at a rapid pace, according to a Bloomberg analysis of trading data. It was clear last week that there was a sharp rise in trading activity for crude oil, but the extent of the flurry of activity is only now quantifiable with bank positioning data, Bloomberg said.

Swap dealers saw the second-largest increase on record in long positions in the ICE futures and options, as contracts increased by 54,000. The only time in history that they’ve been higher was back in 2018.

These big crude oil consumers were at the mercy of high oil prices for much of last year, and are now looking to cash in on the recent price crash. And they’re not wrong in thinking that there is a good chance oil prices will recover yet this year.

Oil analysts are forecasting that there will be an oil price recovery this year, banking on a push of demand thanks to China’s reopening.

In one anecdote cited by Bloomberg, European airline Deutsche Lufthansa AG said it increased its oil hedging to 85% of its planned usage—returning to the levels it was hedging prior to the pandemic.

Brent crude prices fell spectacularly last week, to just over $72 per barrel, but have since shown signs of recovery. Brent prices are now trading at $78.15 as of 10:00 am ET, a 0.08% gain on the day but a $3 gain on the week. Prices, however, are still $8 less than where prices were towards the beginning of the month.

The question now is, when will prices rebound fully, and is now still a good time to hedge, or have big users who haven’t yet hedged missed their opportunity?


By Julianne Geiger for Oilprice.com

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  • George Doolittle on March 28 2023 said:
    *"free natural gas"* total chaos in the energy markets absolutely no doubt and with no ICE Platform alternative on the market to boot other than what be Made in China so on the ball here.

    USA without oil people clearly are doomed. No way around that! Time to destroy the last 10% of Texas not wholly *RUINED* by Chevron et al as what other choice does all of Texas have let alone Oklahoma!

    It's doom alone that counts, so spot on here!

    Imagine the entire US economy *RUINED* by 4.00% interest compounded on debt with *NOTHING* paid out for savers let alone an investor in *ANY* US based Bank! So much winning! Who can't wait to vote *"YES!"* to all of this! Israel and France look at those respective paradises to remind us of what an amazing Future USA now awaits for all of USA America! Why would anyone flee oil glutted Russia! Paradise there no doubt just like Venezuela and Mexico!

    Can't wait to load up on North Dakota debt let alone California debt too!

    Alaska and Washington State so much winning here!

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