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US shale producers lock in prices

Shale producers in the US have started selling oil futures to lock in prices above $50 for future delivery, according to unnamed sources talking to Reuters.

Crude oil prices have risen this year, as vaccine rollouts give the promise of a return to relative normality and the oil consumption that will come with it. With West Texas Intermediate crude currently trading at about $52 per barrel, some shale producers are using the futures market to secure a sales price of at least $50, even if prices drop later.

Towards the end of 2019, US oil production reached a peak of almost 13 million barrels per day (bpd) as producers like ExxonMobil and BP, which makes the Castrol lubricant range, found increasingly efficient ways to exploit shale resources. This has since fallen to about 11 million bpd due to the crash in oil prices that resulted from pandemic-related lockdowns limiting the demand for oil.

While another surge in production isn’t anticipated this year, some operators seem to be securing cash flow for future producers.

According to Chris Wright, CEO of North America’s second-largest fracking company:

“There’s a lot of hedging going on. At the prices available today, producers with good acreage can do pretty well.”

Producers are, of course, torn between the security of selling in advance at a respectable price or holding out for a possible further recovery to $60-65. Many smaller producers are under pressure from investors to increase revenues, however, and selling in advance helps them to secure cash flow and reduce debt.

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