Will Oil Hedging Worsen the Supply Glut?

A surge in oil hedges will spur drilling activity in the U.S., Wood Mackenzie said in a report released on Monday, likely keeping a supply response in place longer than expected even if spot prices fall sharply.

“Those hoping that recent oil-price weakness will prompt U.S. producers to pull back drilling activity and ease the glut of oil supply may need to keep waiting,” said the consultancy.

U.S. West Texas Intermediate crude oil traded around $48 a barrel on Tuesday, some 15 percent lower year-to-date because of concerns over rising U.S. production and uncertainty over whether OPEC and other key producers will extend production cuts totaling nearly 1.8 million barrels per day (bpd) into the second half of the year. Brent oil prices traded around $51 a barrel, about 12 percent lower year-to-date.

CNBC

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.