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Oil's Lifeline Turns Into a $7 Billion Drag

  • Hedging contracts limit benefit of rally for some explorers
  • Hess pays $50 million to unwind hedges; others may follow
Kazakhstan oil

Photographer: Andrey Rudakov/Bloomberg

Updated on

There’s a downside to oil prices being up that could cost the industry more than $7 billion.

When crude markets slumped, explorers used hedging contracts to lock in payments for future barrels to ride out prices that fell as low as $27 a barrel in 2016. Now, as global tensions and OPEC supply cuts drive prices toward $70 in New York, those financial insurance policies have become a drag on profits, limiting some companies from cashing in on the rally.