Latest news with #hedging
Globe and Mail
a day ago
- Business
- Globe and Mail
The greenback question
The U.S. dollar (USD) has lost about 5% of value relative to the Canadian dollar (CAD) so far this year, while the trade-weighted USD has dropped 9%. All else being equal, that means any U.S.-denominated investments have faced a 5% headwind so far in 2025 for Canadian investors, assuming they're unhedged. This has led to a recurring topic in recent conversations on currency, specifically whether or not to hedge U.S. dollar exposures. This isn't a moot point, as there are many different considerations beyond whether the CAD at 73 cents is going to 75 cents or back down to 70 cents. ] Accurately forecasting where a currency is going to go next is rather challenging. Additionally, for a Canadian's portfolio, there are multiple other considerations when it comes to the question of hedging. USD exposure can have a portfolio diversification benefit, and there are many longer-term trends that should be considered. Below, we share our views on all these aspects and our current thoughts on currency hedging. Portfolio diversification For Canadian investors – who are most of our readers – the USD looks fantastic! The TSX and the Canadian dollar are risk-on assets; both are more sensitive than many others to trends in global economic growth. When growth improves and markets become more risk-on, Canadian equity and currency tend to win. Conversely, when growth slows or recession risks rise, the TSX and CAD tend to fall while the USD rises. Even if you dislike policy coming from America, the USD remains a safe-haven currency. If markets go risk-off, money tends to flow back to America, bidding up the currency. As a result, U.S. dollar exposure often acts as a ballast for Canadian investor portfolios, even more so than bonds. The following chart shows the correlation of various investment vehicles to the TSX. USD exposure carries a negative correlation. Additionally included in the chart is the beta, as this helps demonstrate the size of the relative moves, not just the direction. Again, USD stacks up very well as a diversification tool for Canadian portfolios. These numbers look similar over longer periods as well. So, this could support not hedging, given the diversification benefits. But there are other considerations as well. Long-term trends It's very difficult to put a valuation or fair value on a currency exchange rate. Variations in economic activity and shorter-term interest rates certainly drive exchange rates over subsequent months or quarters. Much longer-term purchasing power parity does play a role, but you've got to look really long-term. If a currency is very cheap in one country compared to another, capital flows and trade will gradually reverse the spread (this happens more reliably with developed nations' currencies). The freer the flow of capital, the faster the process; the more restrictions, the slower it goes. But it is not fast either way. Even after the recent rise in the CAD vs USD so far in 2025, we believe the CAD is still cheap or undervalued. But it has been for most of the past decade, as it was overvalued for the previous decade. These are very long and slow-moving cycles. Taking a really long view, the CAD was a dog during the '90s, the USD was a poor performing currency in the '00s, and then the CAD sucked again in the '10s to 2025 so far. If it's a coin flip as to which currency performs better in the next five or ten years, we might say it is a well-loaded coin in favour of the CAD. But there are likely many moves in both directions during that period, some that align with the potential longer-term trend and some that are countertrend. We believe a long-term trend of a weaker USD and strong CAD might support hedging USD exposure. Near-term factors And then there's the rest of the factors, many factors, driving near-term volatility in exchange rates. The CAD has often been influenced by oil prices, but this relationship was stronger pre-2020 than it has been lately. Conversely, changes in short-term relative yields between Canada and the U.S. have become a larger determinant. A narrowing of the spread between two-year yields has supported the Canadian dollar rebound, as has the spike in oil prices as Middle East conflicts intensify. Add cooling uncertainty on the path of tariffs, halving the quantity of short CAD futures contracts, and a minor 'anti' U.S. theme in markets, and we believe the CAD bounce has many supporting tailwinds. These are all known knowns in the currency world, and likely reflected in the recent weakness in USD and strength in CAD, which rallied from below 70 cents to the current 73-cent level. So, in the near term, it really comes down to what happens next. If we get more clarity on tariffs, we could see more CAD strength. If we see economic data continue to decelerate, we could see USD strength. Or some other aspect could rise up to move exchange rates in a way that surprises everyone. Final thoughts So there you have it: no simple answer to this difficult question. From a portfolio construction perspective, we believe you shouldn't hedge just because you want that diversification benefit. From a likely long-term trend perspective, the USD could weaken, supporting hedging. Near-term factors are noisy. We would only act on these factors when things move too far or too fast. At 73 cents, we are rather ambivalent; it's too high to get us excited about adding any USD currency hedges, but not high enough to entice us to remove any existing hedges. In other words, a lot of words and charts just to say we are rather neutral. Craig Basinger is the Chief Market Strategist at Purpose Investments Inc. and portfolio manager of several Purpose funds, including Purpose Tactical Thematic Fund. Notes and disclaimer Content copyright © 2025 by Purpose Investments Inc. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited. This article first appeared on the ' Market Ethos ' page of the Purpose Investments' website. Used with permission. Charts are sourced from Bloomberg unless otherwise noted. The content of this document is for informational purposes only, and is not being provided in the context of an offering of any securities described herein, nor is it a recommendation or solicitation to buy, hold or sell any security. The information is not investment advice, nor is it tailored to the needs or circumstances of any investor. Information contained in this document is not, and under no circumstances is it to be construed as an offering memorandum, prospectus, advertisement or public offering of securities. No securities commission or similar regulatory authority has reviewed this document and any representation to the contrary is an offence. 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Yahoo
3 days ago
- Business
- Yahoo
Prediction: These 3 High-Yield Oil Companies Just Secretly Moved to Secure Their Dividends
Independent oil companies rushed to increase hedges during the recent oil price spike. These three companies are strong candidates to have done so, based on their existing hedging strategies. Increased hedging, at the right price, will reduce downside exposure to the price of oil and help secure dividends. 10 stocks we like better than Devon Energy › It's no secret that the market has lost interest in oil stocks over the past year. Indeed, all three stocks covered here -- namely, Devon Energy (NYSE: DVN), Diamondback Energy (NASDAQ: FANG), and Vitesse Energy (NYSE: VTS) -- have declined over the last year. As such, they now trade with excellent dividend yields or attractive price-to-free cash flow (FCF) multiples. Moreover, I think there's a strong possibility that all three companies have recently moved to reduce risk and secure their dividends. Here's why. Israel's attack on Iran sent the price of oil spiking higher, as investors priced in the risk of ongoing instability in a critically crucial oil-producing region. However, before going into how oil companies responded to this, it's worth putting the move into context. The spike occurred after a few months of oil trading in the low-to-mid-$60 per-barrel range. In addition, sentiment toward oil turned negative following a slower economic growth outlook (due to tariff escalations and ongoing geopolitical tensions) and OPEC's decision to increase production. There's little doubt that sentiment turned negative after events in the spring. For example, Vitesse implemented a 32% cut in its planned capital expenditures and deferred completion of a couple of wells "in response to current commodity price volatility to preserve returns and maintain financial flexibility." Diamondback cut its planned 2025 capital expenditures to $3.4 billion to $3.8 billion from a previous range of $3.8 billion to $4.2 billion. While Devon didn't make any adjustments in connection with the commodity price environment, management noted, "With the ongoing market and price volatility, Devon will continue to monitor the macro environment and has significant flexibility to adjust its activity and capital programs" on its earnings release in early May. According to numerous reports, the attack on Iran on June 13 triggered a record amount of hedging volumes through Aegis Hedging Solutions. This company assists commodity companies with their hedging strategies. While some of it was possibly oil companies looking to get exposure to potentially higher prices, the likelihood is that it was independent oil companies taking advantage of the spike to hedge their near-term production. As we've already seen, all three companies have either cut their capital spending plans or are monitoring events with the option to do so. In addition, they all utilize hedging as an integral part of their capital allocation strategy, ensuring returns to investors through dividends and share buybacks. While we won't know for sure until they release their second-quarter earnings, all three are strong candidates to have taken part in the rush to hedge their oil production. Hedging is an integral part of Vitesse's strategy, which enables it to maintain its $2.25-per-share dividend (current yield: 10%). As of the end of March, Vitesse had 61% of its remaining oil production hedged at an average price of $70.75 per barrel. Look for that figure to increase, or at least an increase in 2026 production volumes hedged. Diamondback is a conservatively run oil company that uses hedging to ensure its base dividend of $4 per share (currently equivalent to a yield of 2.9%). As of May, it had downside protection in place to $55 a barrel. In other words, at any price of oil above $55, Diamondback has upside exposure to the price of oil. The strategy is to enable cash flow to return to investors through a variable dividend or share buybacks, in addition to the base dividend. Again, look for Diamondback to have increased hedging activity in the quarter. As of the first quarter, Devon Energy had more than 25% of its expected 2025 oil production hedged. With that hedging in place, management estimates it will generate $1.9 billion in FCF at a price of oil of $50 per barrel, $2.6 billion at $60 per barrel, and $3.3 billion at $70 per barrel. These figures easily cover its fixed dividend of $0.96 per share (about $650 million in cash). With increased hedging in place, the fixed dividend (currently yielding almost 3%) will be even more secure. In particular, Diamondback's and Devon's dividends look very secure, and both have the potential to increase their discretionary dividends, make more share buybacks, or pay down debt. If I'm right, and they, and Vitesse, took advantage of the oil price spike, then passive income investors can sleep even sounder in the knowledge that their dividend income is safe. Before you buy stock in Devon Energy, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Devon Energy wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $713,547!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $966,931!* Now, it's worth noting Stock Advisor's total average return is 1,062% — a market-crushing outperformance compared to 177% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of June 23, 2025 Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vitesse Energy. The Motley Fool has a disclosure policy. Prediction: These 3 High-Yield Oil Companies Just Secretly Moved to Secure Their Dividends was originally published by The Motley Fool Sign in to access your portfolio
Yahoo
24-06-2025
- Business
- Yahoo
U.S. Oil Producers Rushed to Hedge… Just in Time
U.S. oil producers flocked to hedge higher prices for their output for the rest of the year and early into 2026 as international crude oil prices surged earlier this month. Early on June 13 local time, Israel attacked Iranian nuclear facilities and military leadership in coordinated strikes that sent oil prices surging amid concerns that an escalating conflict could disrupt oil flows from the Middle East. On the night of June 12 and the following morning, Texas-based Aegis Hedging Solutions – a company with a platform for oil producers' hedging – registered its highest-ever number of hedge trades, Aegis Hedging's president Matt Marshall told Bloomberg. U.S. shale producers, who were under-hedged going into this spring, saw a major opportunity to lock in higher prices for the next few months as WTI crude prices surged out of the high $50s - low $60s per barrel price range and hit the $75 mark last week. Oil prices had lingered into the low $60s for the three months between early April and early June, as the U.S. tariff blitz and the OPEC+ production hikes weighed on market sentiment with fears of of March, a survey by Standard Chartered of 40 independent U.S. oil and gas companies revealed they had little protection, with a 2025 oil hedge ratio of just 21% for their combined 5.03 million barrels per day (bpd) of production and a 2026 hedge ratio of just 4%. To compare, the U.S. shale industry entered 2020 with an oil hedge ratio of 51.7%, which provided significant support when oil prices collapsed during the pandemic. As of the end of 2024, independent North American oil and gas producers had more than 80% of their first-half 2025 oil production unhedged, leaving them exposed as OPEC+ supply hikes and concerns about a global recession weighed on the market, data from Evaluate Energy showed in April. Hedging activity, however, spiked on June 12-13 to a record high on the Aegis Hedging platform as producers rushed to lock in higher prices in the short term amid the geopolitics-driven jump in WTI prices. Such war premium-related spikes in oil prices tend to lift the front of the futures curve more than contracts further out in time, unlike in price jumps related to fundamentals. In the case with the Middle East conflict, the hedging strategy was geared more toward the short term, Aegis Hedging says. 'In this case it was probably a six-month effect,' Aegis Hedging's Marshall told Reuters. 'Producers recognized that this could be a fleeting issue and so they saw a price that was above their budget for the first time in a few months, and instead of doing a structure that would give them a floor which is below market, they opted to be aggressive and lock in,' Marshall added. U.S. oil and gas executives polled in the Dallas Fed Energy Survey in Q1 indicated that their companies need an average $65 per barrel to profitably drill a new well. Oil companies that hedged production probably did so just in time. The tentative ceasefire between Iran and Israel, which was announced by U.S. President Donald Trump as "complete and total," has deflated the geopolitical risk premium and brought WTI oil back to $65 per barrel, roughly the level where it traded at before the Israeli strike on Iran. By Tsvetana Paraskova for More Top Reads From this article on Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Reuters
20-06-2025
- Business
- Reuters
Oil hedging volumes hit new records as US producers rush to lock in soaring prices
HOUSTON, June 20 (Reuters) - Israel's surprise attack on Iran last week had oil prices spiking which sent U.S. producers scrambling to lock in the price gain, driving record hedging volumes that will help shield them from future price swings. West Texas Intermediate crude futures rose further this week, closing on Friday at around $75 a barrel. This prompted U.S. producers to secure additional price gains through 2026, having already driven hedging activity on the Aegis Hedging platform to a record high last Friday. Aegis Hedging, which handles hedging for roughly 25-30% of U.S. output, according to internal estimates, saw a record volume and greatest number of trades done on its trading platform on June 13. The U.S. produces some 13.56 million barrels per day of oil, according to the latest government figures. U.S. crude futures jumped 7% on June 13 to around $73 a barrel, after Israel struck Iran, the largest single day rise since July 2022. Prices had been hovering under where many producers would opt to hedge, hitting a four-year low of $57 a barrel in May as OPEC+ started hiking output while U.S. President Donald Trump waged a trade war. The jump on June 13 gave traders an opportunity to lock in prices for their barrels not seen in several weeks. When prices react to risk-related events - such as Israel's attack on Iran - as opposed to supply-and-demand fundamentals, the front of the oil futures curve rises more than later contracts, influencing whether producers opt for short- or long-term hedging strategies, according to Aegis Hedging. "In this case it was probably a six-month effect," said Matt Marshall, president of Aegis Hedging. Oil producers need a price of $65 a barrel on average to profitably drill, according to the first quarter 2025 Dallas Federal Reserve Survey. U.S. crude futures closed below $65 every day from April 4 to June 9, according to LSEG. "We stay disciplined and pay close attention to market volatility. We watch for accretive pricing to our existing hedges and layer in hedges to reduce risk to our asset revenue as well as meet our reserve-based lending covenants," said Rhett Bennett, chief executive at Black Mountain Energy, a producer with operations in the Permian Basin. A reserve-based lending covenant refers to a type of loan producers can obtain, based on the value of the company's oil and gas reserves. "Producers recognized that this could be a fleeting issue and so they saw a price that was above their budget for the first time in a few months, and instead of doing a structure that would give them a floor which is below market, they opted to be aggressive and lock in," said Aegis' Marshall. Aegis' customers often have hedging policies in which a certain amount of production must be hedged by a certain time in the year. "Producers had two months of hedges that they needed to catch up on," Aegis' Marshall said. Traders on June 13 exchanged the most $80 West Texas Intermediate crude oil call options since January on the Chicago Mercantile Exchange, expecting more upside to prices. A total of 33,411 contracts of August-2025 $80 call options for WTI crude oil were traded that day on a total trading volume of 681,000 contracts, marking the highest volume for these options this year, according to CME Group data.
Bloomberg
18-06-2025
- Business
- Bloomberg
Bitcoin Options Show Traders Hedging Against a Dip to $100,000
Bitcoin options show traders are hedging against a price pullback to the $100,000 price level with geopolitical and economic uncertainty rising across global financial markets. The put-to-call volume ratio on the crypto derivatives exchange Deribit surged to 2.17 over the past 24 hours, reflecting a strong tilt toward protective bets. Put options, which offer downside insurance by giving the holder of the contract the right to sell at a certain price, saw outsized demand, particularly in short-dated contracts. For options expiring June 20, open interest in puts struck at $100,000 now tops the board, with a put-to-call ratio of 1.16, underscoring concern about a near-term price fall.
