Occidental Petroleum Stops Hedging Oil In 2022

Occidental Petroleum plans to stop hedging its oil output next year as prices remain elevated with substantial upside potential.

"Our current oil and gas hedges will expire by the end of this year, and we have not added any new hedges for future periods," said chief financial officer Rob Peterson during a call with analysts, as quoted d by Bloomberg.

Last week, Pioneer Natural Resources also said it would significantly reduce hedging amid the higher oil prices. Chief executive Scott Sheffield said he expected prices in 2022 to be between $80 and $100 per barrel.

Pioneer suffered substantial losses from its hedging bets this year, at some $2 billion, as it hedged its future production at prices much lower than where they are now.

"I do think that we're getting in a very, very tighter market over the next several years. Unused capacity in OPEC+ is going to be used up in the next two years," Sheffield said as quoted by Reuters.

Pioneer was by far not the only one to suffer losses stemming from its hedging decisions. Early this year, as West Texas Intermediate reached $70 per barrel, IHS Markit calculated that prematurely hedging producers lost billions because they hedged their output at $55 per barrel.

For the first half of 2021, IHS Markit said in July, losses reached $7.5 billion, but if oil prices remained around $75 per barrel, this could add another $12 billion during the second half of the year as demand continues to improve. 

Prices are still on the rise after a quick dip following last week's OPEC+ meeting. On Friday, Saudi Aramco raised its official selling price for oil, which added fuel to the price rally as it supported expectations that oil demand will remain strong in the coming months. That's despite a slump in China oil imports resulting from the higher prices.

By Irina Slav for Oilprice.com

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