U.S. drillers lock in higher oil prices in surge of hedging

Oil prices have recently edged below $50 a barrel, but several U.S. drillers have already locked in higher prices for the barrels they sell this year, a new report says.

After OPEC announced it would trim oil production in late November, nearly three dozen of the largest U.S. explorers increased oil hedging activity by a third, energy research firm Wood Mackenzie said Monday.

In the fourth quarter, they added 648,000 barrels a day to contracts that would lock in about $50 to $60 a barrel oil for the rest of the year. That was the largest quarterly volume of new oil hedges of the past year.

“Those producers – most of which are highly exposed to U.S. tight oil – will use hedging gains to plug any deficits caused by sub-$50 spot prices,” said Andy McConn, an analyst at Wood Mackenzie, in a statement released Monday.

Still, he added, most of the hedges expire by next year and many still haven’t locked in prices above $55 a barrel, “which is what we think is needed to organically fund significant tight-oil production growth,” McConn said.

Apache Corp. and Anadarko Petroleum Corp. led the oil hedging activity, Wood Mackenzie said.