Diamondback's Risky Hedge Against Export Ban

Diamondback Energy has strategically acquired options that allow it to sell the price difference between U.S. West Texas Intermediate (WTI) and global Brent crude at approximately minus $42 a barrel. This significant financial maneuver, costing nearly $70 million, is a rare form of insurance for oil producers and is contingent on a potential U.S. ban on oil exports.

The unusual hedge is designed to protect Diamondback's revenue streams against the volatile price swings seen in the oil market, particularly amidst geopolitical tensions. If the U.S. were to halt crude exports, domestic inventories would likely rise, driving down WTI prices and widening the discount to Brent. The company has secured these options for up to 290,000 barrels per day in the second and third quarters of 2026, betting on a spread of minus $41.67 and minus $42.76 respectively.

Historically, the WTI-Brent spread has reached discounts as low as minus $20.69 in March, and as wide as minus $28.07 in 2011. While the Trump administration has stated it would not ban oil exports, a recent bill introduced by Congressman Brad Sherman seeks to halt them during the current conflict with Iran. Diamondback previously used similar "basis puts" in 2022 when export bans were also considered.

Should WTI trade at a $42 discount or more below Brent, Diamondback's hedge would become profitable, potentially yielding around $190 million in the second quarter alone if the discount reached $50. Conversely, if the spread doesn't widen sufficiently, the company would lose the premium paid for the options, amounting to nearly $70 million.