Diamondback Energy has taken an unusual approach to managing price risk by buying options that profit if the discount of U.S. West Texas Intermediate (WTI) to Brent crude widens to roughly $42 a barrel, according to the companys most recent quarterly filing. The strategy is structured to benefit the Permian Basin-heavy producer if U.S. policy moves to restrict crude exports.
Per the filing, the company purchased put options that collectively cost nearly $70 million. Those options give Diamondback the right to "sell" the spread between WTI and Brent at minus $41.67 a barrel for volumes up to 255,000 barrels per day in the second quarter of 2026, and at minus $42.76 a barrel for up to 290,000 barrels per day in the third quarter of 2026.
The firms hedge is calibrated to a specific outcome: a material widening of the WTI-Brent differential. That scenario could unfold if the United States were to prohibit crude exports. In that case, domestic inventories would be expected to rise because U.S. refiners typically process less domestic crude than the nation produces, exerting downward pressure on WTI and expanding its discount to Brent.
Market prices have already shown volatility. The WTI-Brent spread was trading at minus $9.29 a barrel on Friday, and earlier in March the spread fell to as much as minus $20.69 amid market concern that U.S. authorities might impose an export restriction to reduce domestic gasoline prices. The options Diamondback bought are structured around an outcome much larger than either of those recent levels.
Hedging is a common tool for oil producers to protect revenue against price declines. What sets this position apart is the focus on the differential between two benchmarks rather than on the absolute price of a single crude grade. The filing describes a bespoke bet on the relationship between WTI and Brent, a tactic the filing characterizes as rare among peers.
The disclosure also highlights a broader backdrop of price uncertainty tied to geopolitical developments. The filing notes that the Iran war has contributed to volatility that can quickly alter producers financial results. The structure of Diamondbacks options means the company would realize gains if that volatility played out in a way that materially widened the WTI discount to Brent.
Market implications
- Energy producers exposed to U.S. pricing differentials may consider non-traditional hedges when policy risk rises.
- Refining and domestic gasoline markets would be affected by a U.S. export ban through inventory and price channels.