The US rushes to lock in the soaring price of oil as US producers rush for new records
The surprise attack by Israel on Iran last weekend sent oil prices surging, which caused U.S. producers to scramble to lock in this price increase. This led them into record volumes of hedging that will shield them from future swings.
West Texas Intermediate crude oil futures have continued to rise this week and closed on Friday around $75 per barrel. U.S. producers were prompted to lock in additional price increases through 2026 after already driving hedging activity to a new record last Friday.
Aegis Hedging - which, according to its own estimates, handles the hedging of roughly 25-30% U.S. production - saw an unprecedented volume of trading and a high number of transactions on its trading platform. This occurred on Wednesday, June 13th. According to the most recent government statistics, the United States produces 13.56 million barrels of oil per day.
U.S. crude oil futures rose 7% to $73 per barrel on June 13, after Israel attacked Iran. This was the biggest single-day rise since July 20,22.
The price of oil had been hovering below the level where most producers would hedge. In May, prices hit a four-year-low of $57 a barrel as OPEC+ began to increase production while President Donald Trump waged a global trade war. The price jump of June 13 allowed traders to lock in barrel prices that had not been seen for several weeks.
Aegis Hedging says that when prices are influenced by risk events, such as Israel's attacks on Iran, rather than supply and demand fundamentals, the front end of the oil curve will rise more than the later contracts. This can influence whether producers choose short-term or long-term strategies for hedging.
Matt Marshall, President of Aegis Hedging, said that "in this case there was probably a 6-month effect".
According to the Dallas Federal Reserve Survey for the first quarter of 2025, oil producers require an average price of $65 per barrel to drill profitably. LSEG reports that U.S. crude oil futures were below $65 a barrel every single day between April 4 and June 9.
We are disciplined, and we pay attention to the volatility of the market. We look for hedges that are more profitable and add them to existing hedges in order to reduce the risk of our asset revenue, as well as to meet our reserve-based loan covenants," explained Rhett Bennet, CEO at Black Mountain Energy.
Reserve-based lending covenants are a type loan that producers can get based on their oil and gas reserves.
Marshall from Aegis said that producers recognized this issue could be temporary and decided to lock in the price rather than do a structure which would have given them a lower floor.
Aegis customers have often hedging policies that require a certain amount to be hedged at a specific time of the year.
Marshall, from Aegis, said that producers had to catch up with hedges they missed for two months.
On June 13, traders on the Chicago Mercantile Exchange traded the most call options for $80 West Texas Intermediate crude since January, anticipating a further rise in prices.
CME Group data shows that 33,411 contracts worth $80 August-2025 call options on WTI crude oil traded in a volume of 681,00 contracts. This was the highest trading volume this year for these options. (Reporting from Georgina McCartney, Houston; Editing and proofreading by David Gregorio).
(source: Reuters)
