Occidental Halts New Oil Hedges Amid Crude Price Volatility
US shale producer Occidental Petroleum has suspended adding new oil hedges this year due to increased volatility in crude prices following the Iran war. Chief Financial Officer Sunil Mathew revealed that derivative-related losses had a partial impact on the company's first-quarter profit, which still beat Wall Street expectations.
In February, before the escalation in the Middle East, Occidental placed 'a modest amount of oil hedges using costless collars'. However, as prices surged higher amidst uncertainty about the duration of the Iran war, the company stopped adding new hedges and does not intend to do more.
The value of these physical shipments is not reflected in earnings until the transaction is completed. Occidental's realized price for oil production fell to $69.91 a barrel, from $71.07 a year earlier, while Brent crude began trading at $60.86 per barrel at the start of the year and closed up more than 94% at $118.35 by the end of March.
The hedges were placed at a price floor of $55 per barrel of US West Texas Intermediate crude and a ceiling of roughly $76 a barrel, which is lower than the current market prices. Occidental does not actively participate in hedging activities but hedges selectively under specific circumstances.