These hedges help companies maintain profits credit lines from banks in a falling oil market.
“I think we could see some ‘forced hedging’ by producers to ensure that lenders extend credit,” Virendra Chauhan, oil analyst at Energy Aspects, a consultancy, said in the FT article.
The hedging may have helped energy stocks from declining as much as the underlying oil market. Year-to-date, the Energy Select Sector SPDR (NYSEArca: XLE) fell 5.9%, Vanguard Energy ETF (NYSEArca: VDE) dipped 6.8% and iShares U.S. Energy ETF (NYSEArca: IYE) dropped 6.7%.
However, some larger companies are betting on rising oil prices from here. For instance, ExxonMobil (NYSE: XOM) has minimal hedging of its own production. Continental Resources (NYSE: CLR) even closed out oil hedges last November in hoes of price rebound.
For more information on the oil market, visit our oil category.
Max Chen contributed to this article.