U.S. shale oil companies are protecting themselves against future price drops as West Texas Intermediate enjoys a rebound above $ 50 a barrel, Reuters reported, citing unknown sources.
Crude oil prices had been slowly recovering during the last quarter of last year, and increased dramatically earlier this month, as the vaccine’s launch progressed, albeit slowly, in the United States and Europe. At the same time, Saudi Arabia surprised the oil markets by declaring that it would cut an additional 1 million barrels a day in its production, in addition to the cuts agreed with OPEC +.
As a result, WTI reached its highest level since February last year, trading at more than $ 52 a barrel at the time of writing. Brent crude recovered above $ 55 a barrel.
According to the Reuters report, short positions in oil futures and options open by producers have been rising since last fall, reaching a five-month high in mid-December. They may have continued to rise this month, as oil benchmarks continued to improve.
Optimism is growing in the sector, according to Reuters sources, who say that some shale producers are waiting for prices to rise further before closing production on the market.
“Some of them (producers) are very much divided between hedging at a level that they would have eliminated six months ago and their perpetually optimistic nature,” Steve Sinos, vice president of consultancy Mercatus Energy, told Reuters.
Production growth in the shale area, in turn, is unlikely in the short term, according to analysts and the industry itself. Despite optimism, perpetual or temporary, shale companies fear another drop in prices, despite OPEC + cuts, and are taking a cautious stance. They are currently focusing on free cash flow, Reuters sources said.
By Irina Slav for Oilprice.com
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