Locking It In -- US Shale Producers Making Deals -- January 15, 2021

From Reuters:

U.S. shale producers are taking advantage of the oil market’s rally to levels not seen in nearly a year by locking in prices for future sales.

U.S. crude futures this month jumped above $50 a barrel to the highest since February, 2020. The rally has sparked optimism among shale companies, but after a bracing year of pandemic-induced demand destruction, they are not ready to ramp up production. Instead, they are using futures markets to lock in higher sale prices.

U.S. oil production peaked at nearly 13 million barrels per day in late 2019, but is now around 11 million bpd after the coronavirus lockdowns crushed fuel demand and oil prices. Output is not expected to rise much in 2021, but those that hedged now are guaranteed sales of barrels at more than $50 even if prices drop again.

“Producers locked in a certain amount of wells at a certain price and hedging at $50 makes you look like a rockstar. This year will be about free cash flow,” one executive at a U.S. shale producer said.

Producers that are hedging are likely locking in about 15% to 20% of production at a time, said Tom Petrie, chairman at energy investment bank Petrie Partners.

Fascinating to watch. The consensus, it seems, oil is yet to rise quite a bit more -- and that's refiners are willing to lock in at current prices. What a game!