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 Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam