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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Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.