U.S. oil producers dramatically reduce hedging strategies

Oil and gas producers in the United States are currently facing a challenging situation. Many of them have not adequately hedged their production, leaving them vulnerable to price swings in the market. Hedging is a strategy used to protect against price drops, but with oil prices rising significantly after Russia's invasion of Ukraine, many producers chose to hedge less, hoping to benefit from higher prices. However, since mid-2022, oil prices have decreased. A recent survey by Standard Chartered showed that independent producers have low hedge coverage, with only 21% hedged for 2025 and just 4% for 2026. In comparison, the oil industry entered 2020 with a much higher hedge ratio of over 51%, which helped protect against price drops during the pandemic. Standard Chartered noted that while the hedge ratios for oil are low, there is still some protection for natural gas producers. The data indicates that those in the natural gas market have a hedge ratio of 40% for 2025. Despite the risk from low hedging, oil prices have remained relatively stable, mostly staying above $70 per barrel, despite market pressures. Traders have expressed concern about potential demand impacts due to U.S. policies and the possibility of increased supplies from changes in regulations. Market sentiment appears negative, particularly for gasoline and crude oil. However, some analysts believe that various factors, such as geopolitical risks and surprisingly strong demand, could prevent a significant drop in prices. Looking ahead, analysts predict that U.S. oil production growth may continue to slow. The growth rate dropped sharply in 2024 and is expected to remain low in the coming years. This reduction in output may contribute to continued price stability in the oil market.