Worse! Hedging costs climb or disrupt the oil spot market

As liquidity shrinks in futures markets, hedging oil becomes more expensive and time-consuming
.
If the situation does not improve, futures trading slows down and has the potential to end up disrupting real-world deliveries
.

A person who executes hedging deals for shale producers said some hedging deals that used to take 4 to 6 weeks to complete now take 3 months or more
.
Meanwhile, the cost of producers locking up hedges to prevent a sudden price plunge has recently soared 50 percent
.

Jay Stevens, vice president of AEGIS Hedging Solutions, said: "The cost of hedging through banks has now increased by an average of 25 per cent, while the cost of hedging through brokers has increased by 50 per cent, so execution costs have risen
significantly.
" "It's still worth hedging, but we definitely have producers who are upset
about it.
"

Rising margin requirements and extreme volatility hit the oil market, which led speculators such as hedge funds to pull out
.
Rising hedging costs and longer trading hours have made the oil market even worse
.
Most traders will not trade spot oil without financial hedging to reduce risk, so the risk of mismatch in the financial trading space spills over into the spot market
.

Several top spot traders have said that the liquidity crisis coupled with limited credit lines is driving up costs, forcing them to reduce trading activity
.
A U.
S.
spot crude trader said that due to credit problems, the difficulty of trading spot crude oil in Cushing, Oklahoma, has increased
significantly.