Crude-oil producers can blame only themselves for cheap oil if there's no recovery, BusinessInsider reports.

By hedging against the volatility in prices, producers are limiting how far up oil prices can go, according to Morgan Stanley's Adam Longson.

In a note on Monday, Longson and team write about how "rampant" hedging among oil producers will probably cap West Texas Intermediate (WTI) crude oil prices at $49 per barrel.

In hedging, producers sell futures contracts at current oil prices, often with the intention to buy them back before they expire — and to avoid making an actual delivery of physical oil.

So producers would earn only a net gain if the settlement price is cheaper than what they sold the contracts for. If oil prices are higher than the hedged price, then producers buy back the contracts at a loss.


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