Shale Companies Hedge Future Production
January 15, 2021
China’s crude oil imports reached record levels in Q3 and Q4 of 2020 with total oil imports rising 7% for 2020. Refineries increased output in the low price environment and stockpiled fuel. China is now again locking down cities in an effort to stop the spread of COVID-19. As mentioned about China has been a country that many have pointed to as a sign that demand is strong so traders will watch to see how these new shut down of cities impact demand.
As crude oil prices continue to rise Reuters is reporting that many shale companies are hedging their future production. WTI crude futures are above $50 per barrel out to about April of 2022 and comments have been made that if you can hedge production $50 you can do pretty well. By selling that production now producers do give up the potential to sell at higher prices if crude continues to go higher.
OPEC said the supply outlook for US shale oil is slightly more “optimistic” due to rising crude oil prices and output will recover further in the second half of this year.
Vitol’s CEO, Russell Hardy, said OPEC and shale oil output will need to increase this year to help offset a potential supply squeeze by the year-end as the markets play catch-up with 2019 demand levels. Vitol is forecasting oil demand will increase by 6-6.5 million bpd in 2021.
Prices are a little lower today to start very likely some profit taking on the China lockdowns. Prices are very likely to be congested today barring some new event or news.