OPEC+ caught the market off-guard on during its March 4 meeting by not increasing production. The market and multiple analysts were expecting a 1.5 MMBbl/d increase in supply with 1 MMBbl/d from Saudi Arabia and another +500 MBbl/d from the rest of OPEC+. In response, WTI rallied to a session high of $66.40 on Friday afternoon — up from $61.28 as of Wednesday's pre-meeting settle.
Our base recommendation for WTI is to utilize swaps to take advantage of the higher price. Bal 2021 is just above $63/Bbl while Cal 2022 trades at $57.66/Bbl as of Friday afternoon.
Do you plan to increase production? Clients may want to choose costless collars on PDP volumes. Generally, costless collars can consume less credit capacity than swaps with the counterparties. Reach out to the trade@aegis-hedging.com team for details.
If the plan is to keep output more stable, then swaps are probably the better structure to add to the portfolio.
Prompt-month WTI has risen over 37% since January 1. This is the biggest percent increase year-to-date in at least the past 30 years. De-risking the portfolio now is a prudent move.
To see details on factors we believe are affecting oil prices and trade recommendations, click the "Read More" button on the Factor Matrix section in the AEGIS Research Module.