Hedging increases as shale drillers lock in prices

U.S. shale drillers have locked in higher prices for almost half of the oil they plan to pump this year as long-term contract known as hedges climb above the historical average.

The futures contracts are a way for producers to lock in prices that have held above $60 a barrel, even as record U.S. production adds to concerns that supplies might again outstrip demand and send crude prices lower. After the fourth quarter, U.S. oil companies increased their 2018 oil hedges to 48 percent, up from 30 percent after the third quarter, Goldman Sachs said in a new report.

The New York investment bank said the increased protection on future production means these drillers can boost their output and avoid spending more cash than they’re generating, one major goal investors have set for the U.S. shale industry this year. Most U.S. shale oil companies, Goldman said, have hedged more than 50 percent of their 2018 oil production.

American frackers, meanwhile, are cranking out crude oil in Texas, North Dakota and Colorado even faster than expected, defying overseas rivals who have limited production to support oil prices. The U.S. Energy Department recently projected U.S. shale drillers will produce an additional 131,000 barrels a day to push output from the nation’s seven major shale plays to nearly 7 million barrels a day by April. The bulk of the increased production will come from the Permian Basin and the Eagle Ford Shale in Texas.

At the end of last year, all U.S. production hit a record 10.2 million barrels a day, pushing the United States ahead of Saudi Arabia to become the world’s second-largest oil producer behind Russia.