At Least Oil Producers Are Starting To Hedge Their Bets.
Recently, Goldman sachs said that oil producers have accelerated their hedging of risk of production in 2019, averaging about $60 a barrel.While hedging limits profit margins, it can provide protection when prices are volatile.
In a report on Tuesday, Goldman said that about 48 percent of its oil production had been hedged at an average price of $57 a barrel in 2018.
"At the same time, 16 per cent of the oil production in 2019 has been hedged at $60 a barrel, up from 9 per cent at the end of the fourth quarter last year.This is in line with the average rate of production of hedging in previous quarters."The report shows.
Hedging refers to the use of futures contracts as a general in the future on the spot market for the sale of goods temporary substitute, the now buy ready later sold goods or for the future needs to buy commodity prices for insurance business activities.Futures hedging can be divided into long hedging and short hedging.
Short hedging also called sell hedging, first refers to the traders in the futures market to sell futures, when spot prices in futures market profits to make up for the loss of the spot market, thus to achieve the value of a way of futures trading.
Oil producers use futures contracts to hedge their production risks in order to avoid losses when crude prices suddenly fall.This is a standard short - term hedging strategy.
That means oil producers are bearish on future oil prices in the long term.At least in the second half of 2018 and 2019.