AT A GLANCE:
- U.S. shale producers, notably quiet on hedging since the pandemic, are re-engaging in WTI futures and options.
- The emergence of this key seller reflects the shift in the long-term oil price outlook and the ability of U.S. producers to proactively manage revenue through an uncertain time.
A significant shift is underway in oil markets: U.S. shale producers—whose willingness to hedge their oil production had been notably muted since the pandemic—are re-engaging in earnest, marking the return of what once was a major seller on the oil futures curve. The re-emergence of a key player is drawing keen attention from traders, who carefully watch participant behavior patterns to guide their strategy.
Data compiled by Bloomberg Intelligence shows that hedging activity by publicly owned oil and gas companies began to tick higher in the second half of 2024 and has continued throughout 2025. Weekly reports from the Commodity Futures Trading Commission (CFTC) on futures and options positioning confirm the trend continued into the third quarter, with Swap Dealer Short positions* in WTI futures and options still rising.
What’s Changed?
Briefly in 2024 and again in 2025, the price of WTI futures dipped into the fifties, levels not seen since 2021, pushing drilling economics into uncharted territory for the new, restructured shale industry. Since 2020, consolidation, ample revenues and a focus on returning capital to shareholders has changed the balance sheets and thus the hedging requirements and hedging appetite of the shale industry. A bullish outlook for oil and steep backwardation in the oil futures curve further discouraged producers from locking in prices that seemed too low.
Conditions have changed. While acute geopolitical flashpoints can inject short-term upside into oil prices, the consensus among leading energy agencies (the IEA, EIA and OPEC) points toward a trajectory of ample, if not oversupplied, conditions in the medium to long term. The oil price has been reflective of this dichotomy as front month WTI futures, a main indicator of revenue for producers, swung from a high of $80 per barrel in January 2025 to lows of $55 in the spring before rallying back to $77 in June.
Rallies have given producers an opportunity to lock in strong returns, while threats of negative drilling economics and a less-backwardated curve have also encouraged hedging at more modest price levels. No matter the level, hedging allows producers to strategically position themselves for both episodic shocks and a more tempered long-term price environment.
Producer hedging peaked in 2018, both in absolute terms and as a percentage of U.S. production. Between 2019 and 2023, hedging levels experienced a gradual decline as older hedges matured, producers unwound positions during the pandemic-induced price decline and overall hedging appetite diminished. The renewed appetite aligns with a broader market sentiment anticipating a moderation in price growth.
The Hedger’s Tool Kit
Producers who want to lock in a fixed price for crude oil often sell a WTI swap, allowing them to exchange a fixed payment for the calendar month average (CMA) of the front-month WTI futures price, either in the OTC market or via the Exchange’s WTI CMA future (CS). The popularity of this hedge is tied to its alignment with physical trade: physical crude sales are frequently settled as a differential to this NYMEX WTI CMA. In July 2025, open interest (OI) on this contract hit a post-pandemic high. Bloomberg data also reflects producers managing their Midland and Gulf Coast basis risk using a rising volume of Argus WTI Houston and Argus WTI Midland-based derivatives.
In the pre-pandemic period of active shale hedging, complex option structures were prominent, reflecting producers’ sophisticated understanding of options markets and the ability to tailor custom risk profiles. Three-way collars—which combine a long put, a short call and a second, further out-of-the-money short put—offered producers cost-efficient downside protection while strategically defining their upside and re-exposure levels. Two-way collars, consisting of a long put and a short call, were also common.
In 2024 and earlier in 2025, public company hedging focused more heavily on buying outright puts, signaling a direct desire for pure downside protection against price declines. This move proved to be positive after oil prices declined sharply in the spring.
WTI options volume is up 40% year-on-year in the first half of 2025, with the producer-oriented average-price option volumes reflecting significant activity both on price rallies and near the lows. The significant increase in OI in WTI CMA futures (CS) and the average price WTI option (AO), directly reflects this renewed and purposeful hedging activity.
The landscape of oil price hedging for U.S. shale producers has undeniably undergone significant shifts since 2020. While the trajectory for U.S. crude oil production growth is uncertain, the increased willingness of producers to sell forward and secure prices signifies the industry’s ability to manage revenue and lay a stable foundation for the coming years. With hedged positions now growing and producers showing a clear appetite to engage with the oil futures and options market, they are once again a key participant for oil traders to watch.
*Swap Dealer short positions widely regarded as a proxy for the futures positions taken by banks to offset the over-the-counter (OTC) hedges they execute with producers.
CME Group futures are not suitable for all investors and involve the risk of loss. Full disclaimer. Copyright © 2025 CME Group Inc.
