As oil plows through $45 a barrel, U.S. producers rush to lock in prices
By Liz Hampton
HOUSTON (Reuters) - U.S. oil producers pounced on this month's 20 percent rally in crude futures to the highest level since November, locking in better prices for their oil by selling future output and securing an additional lifeline for the years-long downturn.
The flurry of dealing kicked off when prices pierced $45 per barrel earlier in April. It picked up in recent weeks, allowing producers to continue to pump crude even if prices crash anew.
While it was not clear if oil prices will remain at current levels, it may also be a sign producers are preparing to add rigs and ramp up output.
This week, Pioneer Natural Resources Co (PXD.N: Quote), a major producer in the Permian shale basin of West Texas, said it would add rigs with oil prices above $50 per barrel.
Selling into 2017 tightened the structure of the forward curve, with December 2017's premium to December 2016 CLZ6, known as a contango, narrowing to $1.30, its tightest since June 2015. That spread had been as wide as $2.15 a barrel just four days earlier.
Open interest in the December 2017 CLZ7 WTI contract was at a record high of 122,533 lots on Friday, up about 20,000 lots from the start of April.
"U.S. producers have been quick to lock in price protection as the market rallies given that the vast number of companies remain significantly under hedged relative to historically normal levels," said Michael Tran, director of energy strategy at RBC Capital Markets in New York.