Oil Hedging’s Growing Costs Are Imperiling Real-World Deliveries
- Both the cost and time taken for hedging deals is on the rise
- Traders can’t ship oil without financial hedge to counter risk
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It’s getting both costlier and more time consuming to hedge oil as liquidity shrinks in the futures market, slowing transactions and threatening to ultimately disrupt real-world deliveries if the situation doesn’t improve.
Some hedging deals that used to take four to six weeks to transact are now taking three months or more, one person who executes hedging for shale producers said. At the same time, the cost for producers to lock in hedges that act as insurance against a sudden collapse in prices has recently surged by as much as 50%.