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Mint
7 hours ago
- Business
- Mint
Oil hedging volumes hit new records as US producers rush to lock in soaring prices
Hedging activity spikes as producers lock in higher prices US crude futures jump after Israel strikes Iran Oil producers need $65 a barrel on average to profitably drill HOUSTON, - Israel's surprise attack on Iran last week had oil prices spiking which sent U.S. producers scrambling to lock in the price gain, driving record hedging volumes that will help shield them from future price swings. West Texas Intermediate crude futures rose further this week, closing on Friday at around $75 a barrel. This prompted U.S. producers to secure additional price gains through 2026, having already driven hedging activity on the Aegis Hedging platform to a record high last Friday. Aegis Hedging, which handles hedging for roughly 25-30% of U.S. output, according to internal estimates, saw a record volume and greatest number of trades done on its trading platform on June 13. The U.S. produces some 13.56 million barrels per day of oil, according to the latest government figures. U.S. crude futures jumped 7% on June 13 to around $73 a barrel, after Israel struck Iran, the largest single day rise since July 2022. Prices had been hovering under where many producers would opt to hedge, hitting a four-year low of $57 a barrel in May as OPEC started hiking output while U.S. President Donald Trump waged a trade war. The jump on June 13 gave traders an opportunity to lock in prices for their barrels not seen in several weeks. When prices react to risk-related events - such as Israel's attack on Iran - as opposed to supply-and-demand fundamentals, the front of the oil futures curve rises more than later contracts, influencing whether producers opt for short- or long-term hedging strategies, according to Aegis Hedging. "In this case it was probably a six-month effect," said Matt Marshall, president of Aegis Hedging. Oil producers need a price of $65 a barrel on average to profitably drill, according to the first quarter 2025 Dallas Federal Reserve Survey. U.S. crude futures closed below $65 every day from April 4 to June 9, according to LSEG. "We stay disciplined and pay close attention to market volatility. We watch for accretive pricing to our existing hedges and layer in hedges to reduce risk to our asset revenue as well as meet our reserve-based lending covenants," said Rhett Bennett, chief executive at Black Mountain Energy, a producer with operations in the Permian Basin. A reserve-based lending covenant refers to a type of loan producers can obtain, based on the value of the company's oil and gas reserves. "Producers recognized that this could be a fleeting issue and so they saw a price that was above their budget for the first time in a few months, and instead of doing a structure that would give them a floor which is below market, they opted to be aggressive and lock in," said Aegis' Marshall. Aegis' customers often have hedging policies in which a certain amount of production must be hedged by a certain time in the year. "Producers had two months of hedges that they needed to catch up on," Aegis' Marshall said. Traders on June 13 exchanged the most $80 West Texas Intermediate crude oil call options since January on the Chicago Mercantile Exchange, expecting more upside to prices. A total of 33,411 contracts of August-2025 $80 call options for WTI crude oil were traded that day on a total trading volume of 681,000 contracts, marking the highest volume for these options this year, according to CME Group data. This article was generated from an automated news agency feed without modifications to text.
Yahoo
8 hours ago
- Business
- Yahoo
Oil hedging volumes hit new records as US producers rush to lock in soaring prices
By Georgina McCartney HOUSTON (Reuters) -Israel's surprise attack on Iran last week had oil prices spiking which sent U.S. producers scrambling to lock in the price gain, driving record hedging volumes that will help shield them from future price swings. West Texas Intermediate crude futures rose further this week, closing on Friday at around $75 a barrel. This prompted U.S. producers to secure additional price gains through 2026, having already driven hedging activity on the Aegis Hedging platform to a record high last Friday. Aegis Hedging, which handles hedging for roughly 25-30% of U.S. output, according to internal estimates, saw a record volume and greatest number of trades done on its trading platform on June 13. The U.S. produces some 13.56 million barrels per day of oil, according to the latest government figures. U.S. crude futures jumped 7% on June 13 to around $73 a barrel, after Israel struck Iran, the largest single day rise since July 2022. Prices had been hovering under where many producers would opt to hedge, hitting a four-year low of $57 a barrel in May as OPEC+ started hiking output while U.S. President Donald Trump waged a trade war. The jump on June 13 gave traders an opportunity to lock in prices for their barrels not seen in several weeks. When prices react to risk-related events - such as Israel's attack on Iran - as opposed to supply-and-demand fundamentals, the front of the oil futures curve rises more than later contracts, influencing whether producers opt for short- or long-term hedging strategies, according to Aegis Hedging. "In this case it was probably a six-month effect," said Matt Marshall, president of Aegis Hedging. Oil producers need a price of $65 a barrel on average to profitably drill, according to the first quarter 2025 Dallas Federal Reserve Survey. U.S. crude futures closed below $65 every day from April 4 to June 9, according to LSEG. "We stay disciplined and pay close attention to market volatility. We watch for accretive pricing to our existing hedges and layer in hedges to reduce risk to our asset revenue as well as meet our reserve-based lending covenants," said Rhett Bennett, chief executive at Black Mountain Energy, a producer with operations in the Permian Basin. A reserve-based lending covenant refers to a type of loan producers can obtain, based on the value of the company's oil and gas reserves. "Producers recognized that this could be a fleeting issue and so they saw a price that was above their budget for the first time in a few months, and instead of doing a structure that would give them a floor which is below market, they opted to be aggressive and lock in," said Aegis' Marshall. Aegis' customers often have hedging policies in which a certain amount of production must be hedged by a certain time in the year. "Producers had two months of hedges that they needed to catch up on," Aegis' Marshall said. Traders on June 13 exchanged the most $80 West Texas Intermediate crude oil call options since January on the Chicago Mercantile Exchange, expecting more upside to prices. A total of 33,411 contracts of August-2025 $80 call options for WTI crude oil were traded that day on a total trading volume of 681,000 contracts, marking the highest volume for these options this year, according to CME Group data. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
15-04-2025
- Business
- Yahoo
Lower Oil Prices Threaten Permian Basin Growth
West Texas Intermediate (WTI) crude prices dipped into the low $60 per barrel range following President Donald Trump's sweeping tariffs announced on 2 April. While the subsequent 9 April move to pause the new levies at 10% for most countries for the next 90 days helped WTI prices recoup some losses, the market remains extremely volatile. This price level is well above the fundamental upstream breakevens for most US shale players, especially those in the Permian. However, Rystad Energy finds that additional corporate items, including higher hurdle rates, dividend payments and debt service costs, means that the 'all-in' corporate cash flow breakeven for many US oil players is closer to $62.50 WTI. If the recent price downturn is sustained, these price levels could threaten US oil production growth this year, as operators may be forced to cut back activity to maintain investor payouts. Sentiment was already fragile following the late March release of the first quarter Dallas Federal Reserve Survey, which found oil and gas executives to be worried about the impact of President Trump's trade policies. Fresh off of 2025 budgeting, US shale oil players issued guidance indicating another year of modest growth. Nearly all of the US Lower 48 oil growth this year is pegged to come from the Permian Basin. While Permian breakevens are the most commercial in the shale patch, exploration and production (E&P) companies have promised high dividends. At the same time, an uneven distribution of the best remaining acreage means that some of this growth may be at risk if lower prices are sustained. In the figure below, we estimate the 'all-in' corporate cash flow WTI breakeven for a new well in the US oil. E&P executives look beyond these metrics when making investment decisions. 'Shale 4.0' has given rise to higher hurdle rates applied to new activity, meaning the historic 10% discount rates have now given way to a much higher returns threshold. We see an 18% discount rate as more realistic for this exercise, which adds another $4.50 per barrel. We find that public players paid $9.30 per barrel of produced oil in dividends in 2024. With some of these dividends variable, we believe that $8.50 per barrel is a realistic figure this year. Lastly, with debt levels rising in recent quarters as operators expand their portfolios through acquisitions, debt service costs rose in 2024. During the year, companies paid $2.92 in interest payments per barrel of net oil production. Added all together, we find that the estimated 'all-in' corporate cash flow WTI breakeven is closer to $62.50 for new activity in 2025. With prices hovering below this level, we see significant risks for US production in 2025. A downshift in the Permian could spell a significantly decelerated pace of growth in 2025, should prices remain subdued. While the Trump administration has sought to both lower prices and increase production, its trade policies have sent prices falling due to the potential for dented demand. The corporate reality for public players means that the already modest growth could be at risk if WTI prices remain in the low $60s. The business model embraced by US oil producers over the past several years becomes far more difficult to maintain with prices below this level. This means that some combination of near-term activity levels, investor payouts or inventory preservation will need to be sacrificed in order to defend margins. While different companies have different sensitivity to the above factors, activity and production will be threatened the most. By Rystad Energy More Top Reads From this article on Sign in to access your portfolio
