Oil at US$40 no problem as US drillers snub OPEC with hedges

CHICAGO/HOUSTON (March 16): OPEC’s worst enemy isn’t US shale drillers. It’s the hedges propping them up.

American oil explorers who survived the worst of the 2014-2016 market rout are shrugging off the 14% slide in prices this year from a high of US$55.24 ($77.47) to less than US$48 a barrel Tuesday. The price would have to drop to the US$30s or lower to dent the bottom line of many drillers now working US shale fields, said Katherine Richard, the CEO of Warwick Energy Investment Group, which own stakes in more than 5,000 oil and natural gas wells.

That’s because many producers have already locked in future returns with financial contracts that guarantee the price of their oil for most of the rest of the decade. Such resilience poses a dilemma for countries that agreed to an OPEC-led production cut aimed at tightening supplies to raise prices and relieve their distressed national economies.

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