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U.S. Shale Becomes More Flexible, Hedges 900,000 Barrels

U.S. oil producers have hedged almost 900,000 barrels of future crude at prices of US$50-60 a barrel, which will likely allow them to continue growing production whatever OPEC decides to do at its meeting tomorrow.

Bloomberg quotes data from Wood Mackenzie that shows during the third quarter, 33 E&Ps hedged a total 897,000 barrels of future production, which was a 147-percent jump over the second quarter and the biggest one since Wood Mac started tracking hedging data.

The most active hedgers were Hess and Cenovus – they accounted for more than a third of the total hedged amount of future production. Some 14 companies from the sample of 33 locked in the future prices of at least 25,000 bpd in production.

“Producers that are able to lock in prices above previous expectations may feel more comfortable with increasing activity. Others may leave budgets unchanged and promote higher cash-flow guidance to an investment community anxious about profits," Wood Mac analyst Andy McConn said.

In any case, the news is not particularly good for OPEC, for whom U.S. production and specifically shale production is a major pain in the neck. It is a pain that refused to go away even when the cartel tried to drown it in oil, and not only that but the shale industry proved more resilient than OPEC had expected.

Related: U.S. Oil Has One Fatal Weakness

When the traditional strategy of flooding the markets with crude to stifle the competition didn’t work, OPEC agreed, along with almost a dozen other producers led by Russia, to cut production by 1.8 million bpd to prop up prices that had sunk into the low US$30s.

Now, the cartel and its partners are due to meet in Vienna to discuss an extension of the deal, and while last year the degree of certainty about a positive outcome was pretty high, now there are doubts about Russia signing on to another nine-month option, which it actually proposed.

By Irina Slav for Oilprice.com

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