Hess, the fourth-largest US oil company, has expanded its hedging position on 2022 crude oil as oil prices continue to climb this month to hedge against a future fall in oil prices, according to newly disclosed documents. However, if oil prices rise too much, the company will lose money on its hedging position.
Hedging against oil prices allows oil producers to protect against the risk of a sudden drop in oil prices, insuring their performance, but it is not without risks.
Hess said in a securities filing on Wednesday that since the end of September this year, Hess has doubled the hedging of global benchmark Brent (Brent) crude oil to 60000 barrels per day next year, and expanded the hedging of WTI crude oil for the same period from 80000 barrels per day to 90000 barrels per day.
It is reported that if the price of Brent crude exceeds $95 or the price of WTI crude exceeds $90, the company's hedging position will start to lose money. The near-month futures price of Brent crude has exceeded $86 a barrel this week and has risen nearly 9 per cent so far this month, while futures for 2022 have risen to about $83.
John Riley (John Rielly), Hess's chief financial officer, said on a third-quarter earnings call that the company's 2022 hedging project cost about $161 million. He added that Hess was seeking price protection as the company continued to raise money for its investment in Guyana.
Oil prices rose faster than expected
Oil prices have risen more than the market expected this year, and many shale oil producers have suffered a lot from their hedging strategies.
Pioneer Natural Resources said this week that it had lost $2 billion on derivatives trading this year as of September and had liquidated its hedging position of about 8 per cent of its total oil production.
Michael Tran, commodities strategist at (RBC Capital Markets) at Royal Bank of Canada Capital Markets, said global oil producers were facing a dilemma between the most favourable fundamentals supporting oil prices for years and hedging risks from higher oil prices.
At present, most crude oil producers avoid increasing their short positions for fear that investors will object to using their money to prevent a price collapse, rather than opening the door to a price rebound. A media study of 36 North American oil producers showed that they hedged 54% of crude oil production in the second half of 2021 and only 28% of next year's output.
