Oil Prices Fall To Lowest Level In Four Months

Many large US oil producers have oil price hedges in place through the beginning of 2015 or for the entire year that are helping blunt the impact of lower oil prices. Some companies may be able to cash in on well positioned hedges and use the funds to purchase new positions that can help weather the current price environment. “For example, a company that had sold swap contracts to hedge a part of its 2015 production at $90 a barrel – essentially shorting forward oil prices to guard against a drop – could buy them now back at around $57 for a profit of about $33 a barrel. Instead of just pocketing the cash, some companies are using the funds to shield themselves against a further market slide by buying swaps and options pegged closer to current prices. With the December 2015 put option for $60 a barrel now trading at around $9 a barrel, swaps cashed in now could buy a producer nearly four times more protection at that price.” [Reuters]

Information released by the US government as part of a Freedom of Information Act request could make critical parts of US energy infrastructure vulnerable to cyber attack. “The Aurora Project exposed a vulnerability common to many electrical generators, water pumps and other pieces of infrastructure, wherein an attacker remotely opens and closes key circuit breakers, throwing the machine’s rotating parts out of synchronization causing parts of the system to break down.” [Government Executive]

Russia is pumping oil over 10 million barrels per day, Iraq is increasing exports and US production is expected to increase over the next 6 months, while a strong dollar and global economic weakness continue sending oil prices lower. “The oil market is set for “more problems” this year as increasing supplies add to the global glut, according to Morgan Stanley. Output may rise in West Africa and the Americas in addition to more shipments from Russia and Iraq, offsetting concerns of reduced Libyan production, analysts including New York-based Adam Longson said in an e-mailed report today. Iran may boost exports by about 500,000 barrels a day if western sanctions against it are lifted, the analysts said.” [Bloomberg]