Oil Prices – To Hedge Or Not To Hedge
The oil industry for the past couple of years was seeing some level of stability in the range of $100 a barrel. The companies that hedged at that price have secured their revenues now that oil has fallen to about $50 a barrel.
Purchasers who hedged would be the real losers, as they felt that they would have been facing higher prices at this time. The prices have moved the other way and did a dramatic drop in price in the past few of weeks. Essentially they have hedged a price that is not relevant at this time. They are currently overpaying for the product.
This goes to prove that it is a gamble to decide to hedge as it can go either way. No one can ever be sure what to do. Therefore, it can be beneficial for either purchaser or producer as the prices can be volatile.
Read In depth Baken News Article here: http://bakken.com/news/id/227638/analysis-oil-price-slump-sorts-hedged-unhedged/
Terry Smeader
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