That is according to energy economist Philip Verleger,who points out that shale firms have utilized hedging via the purchase of put(sell) options placing an effective floor under the price of their crude.Based on regulatory filings,most shale firms had put options in a WTI range of $50~60/bbl.During 4Q of last year,when both Brent and WTI prices started to fall rapidly,the investment banks responsible for selling those put options were forced to hedge their own positions,which was done by selling crude in the futures market and is a scheme known as”delta hedging.”As crude prices continued to fall throughout 4Q due to the Trump administration granting waivers fori Iranian sanctions and growing concerns about global economic growth,these investment banks were forced to sell even more crude in the futures market to offset the put options they had to sell from shale firms hedging programs.which created a loop that led to prices being driven down even more.
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