Direct Swap Market Alert: Crude starts the new year closing above $50!

As mentioned in our last Hedge Alert -- WTI crude showed strength throughout Q4-20 and has continued its rally into the 21 New Year, closing above $50 per bbl for the first time since February 2020. This is a significant price milestone following the COVID pandemic (and a huge leap from the negative pricing seen in April of last year).

Figure 1 Prompt WTI CMA

This rally has been fueled by optimism in vaccination rollouts across US and Western Europe, recovery in oil product demand in Asia, 400 KB/D voluntary cuts from Saudi Arabia, and new inflows into commodities from asset managers.

These tail winds should help support crude oil prices for the 1H of 2021 and provide support across the curve—which has rallied above $45 all the way out through Q3 2023 and shows backwardation (implied tightness in supply) from March 2021 onward.

Figure 2 WTI backwardation Forward Curve

The energy picture has changed dramatically in the past 8 months, and now provides clients with new opportunities to hedge forward, to lock in profitability after a devastating year.

The Direct Swap’s new Hedge Analytics module, specifically designed for oil and gas producers, gives users the ability to perform different types of analysis on their hedge portfolio, and develop actionable insights to help our clients make strategic changes based on the evolving market to minimize risk and maximize profit potential.

Figure 3 Direct Swap Analytics Dashboard

Figure 4 Direct Swap Hedging Dashboard

A unique and compact dashboard quickly allows producers to see their hedges, lender requirements and instrument breakdown. Intuitive overlays allow the compilation and graphing of existing hedge profiles, volumetric production forecasts and associated costs, to forecast profit margins across the curve. Hedges of multiple instrument types can be aggregated and compared against market-data and forward curves, to highlight effectiveness and exposure.

Direct Swap looks forward to continuing to provide our E&P clients with an expanding suite of tools to optimize their hedging activities, as hedging only becomes more important in the current environment. For those that have not already done so, please reach out to to schedule a demo of our comprehensive electronic hedging platform.

Jan 10, 2021