In addition to creating immediate headwinds by selling into the rally, drillers whose future profits are insured with new hedges will be better able to keep on pumping oil, adding to a global oversupply, the thinking goes.
"Any little rally ends up getting suffocated by the new production it unleashes," said Vikas Dwivedi, Houston-based global oil and gas strategist at Macquarie Group.
The push-pull between current prices and future production highlights a new normal for oil markets, in which the short-run cycles of the agile U.S. shale sector have replaced OPEC as the world's swing supplier. The $50 hedges also illustrate how shale firms have been able to keep drilling at lower and lower costs thanks to efficiency gains and focus on the most productive spots; a year ago, break-even costs were seen nearer $70.
As a result, producers are moving more quickly than ever to catch what may be a fleeting price recovery.
In a push that started Tuesday and continued through Friday, U.S. producers have locked in new production in greater volumes for 2016 and 2017, according to three market participants who watch money flows.
Last week, the average price for all 2016 contracts on the U.S. WTI benchmark — known as the "strip" — rose more than 7 percent to above $53 a barrel, near its highest since late July. Apart from a fleeting price spike in late August, it is the broadest gain since April. The 2017 strip traded above $55 a barrel.
"What we're seeing now is one of the better opportunities for producers to hedge," said John Saucer, vice president of research and analysis at Mobius Risk Group, which advises firms including producers on energy hedging strategies.