Insight
Oil-hedging activity falls with prices
Report summary
The Q4 2018 disclosures suggest producers slammed the brakes on hedging programmes after WTI futures fell below the US$55/bbl threshold. That price point is near many small- and mid-caps’ cash-flow-breakeven prices, highlighting the importance of free cash flow as a strategic objective. What did surprise us were the late dates on new contracts. Historically, Q4 hedging activity is significantly weighted to the upcoming calendar year. But during this Q4, two-thirds of activity was dated for the following year (2020). That trend could reflect a variety of views, but we attribute it mainly to the sector perceiving more price upside for 2019.
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