Oil: Time for Producers to Hedge?

The Week Ahead

November 27, 2017

As Canada’s energy sector learned all too well in the past two years, operating in a volatile pricing world means positioning your business to survive the tough times in order to live to see a brighter day. Broadly speaking, many of our clients in the sector proved their ability to do just that. But it may now be opportune to take some steps to strap on a bit of protection against adverse conditions in the future.

The upside to oil from here appears fairly limited, barring a hot war between Iran and Saudi Arabia. OPEC producers and Russia could rationally decide to produce more oil again to meet global demand growth if prices topped $60, rather than cede more market share to the US and others. Note that OPEC eschewed production cuts in 2014 as prices were tumbling through $70, likely concluding that shale projects elsewhere were too attractive at that level to give them monopoly power over total global production and prices.

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