Oil rally may draw rush of consumer hedging

NEW YORK (Reuters) – A nearly 70 percent run up in oil prices since February may trigger a round of hedging by big energy consumer industries, like airlines, seeking to protect themselves from a further hike in costs.

Already experts say there have been signs more companies are wading into the market to take out protective positions against increased costs — a trend that could accelerate oil’s rally if it gains momentum.

“I think there has been a bit of it, we know the airlines have been doing it, although probably not to the degree that they were,” said Edward Morse, Chief Economist for LCM Commodities in New York. Hedging activity surged during oil’s rally to record peaks near $150 per barrel last July.

“I think it is fair to say that consumers have been increasing their hedging activities globally,” he said, adding that hedging was up in Asia and Europe, and to a lesser degree, the United States.

Increased buying interest for contracts to lock in prices could add to oil’s gains, which traders have so far pegged to optimism that an economic recovery is looming that will lift ailing global energy demand, analysts said.

Reuters