Analysts at Goldman Sachs dismissed recent events between Iran and Israel as a bullish factor for oil prices, citing potential hedging by oil producers. According to FXStreet, the bank said, “Our commodity strategists do not expect significant further increases in oil prices,” adding, “Hedge funds continue to short U.S. energy stocks for the third week in a row. The sector is now expecting a significant increase in oil prices,” he added. He has been a net seller in five of the past six weeks.
One reason for this decline could be the strong performance of these energy stocks, which has pushed the S&P 500 Energy Index up 17% since the beginning of the year, doubling it for the year. Reuters reported the historical profit margin last week. This strong performance for energy stocks is also due in part to a 20% increase in oil prices since the beginning of 2024. Analysts at Goldman said The rise in oil prices due to rising geopolitical risks may be suppressed by hedging decisions by oil-producing countries,” and “they are taking price risks to reduce production. We are selling them ahead of schedule,” he said. However, insurance seems to be losing its appeal for many people.
Hedging Transactions Among U.S.
Producers fell significantly last year, perhaps reflecting a change in attitude toward hedging that has been prevalent for decades, but the risk of losing money in a bull market is low. Additionally, as Bloomberg reported last year, U.S. Oil’s consolidation efforts have led to a decline in hedging activity, with consolidation buyers choosing not to set the future price of upstream production from the independent companies they acquire. It uses its proprietary operations to hedge against price fluctuations. I did this as usual. Given recent developments between Iran and Israel, hedging may also be riskier than before. If Israel retaliates against Iran, oil prices are certain to rise further, given the country’s status as OPEC’s fourth-largest producer. If the situation continues to escalate from there, all bets are off and there is a good chance Brent price will hit $100.
