Crude Oil Price Risk Management: Should Nigeria Hedge Its Crude Oil Production?

2020 ◽  
Author(s):  
Adedamola Adegun ◽  
Olalekan Abiola
Keyword(s):  
Risk Management ◽  
Crude Oil ◽  
Oil Production ◽  
Oil Price ◽  
Price Risk ◽  
Crude Oil Price ◽  
Crude Oil Production ◽  
Oil Price Risk ◽  
Price Risk Management

scholarly journals Oil threshold value between oil price and production

2019 ◽  
Vol 66 (4) ◽  
pp. 487-505 ◽  
Author(s):  
Tzu-Yi Yang ◽  
Ha Thanh ◽  
Chia-Wei Yen
Keyword(s):  
Crude Oil ◽  
Price Volatility ◽  
Oil Prices ◽  
Oil Production ◽  
Threshold Value ◽  
Oil Price ◽  
Smooth Transition ◽  
Crude Oil Price ◽  
Oil Price Volatility ◽  
Crude Oil Production

This study proposes a panel smooth transition regression (PSTR) model to investigate the nonlinear relationship between crude oil prices and crude oil production in 122 countries, both OPEC and non-OPEC, from March 1994 to October 2015. The statistical test for the existence of a threshold effect indicates that the relationship between oil prices and oil production is nonlinear, with different changes over time among the oil price and transition variables. Additionally, a threshold value exists. Furthermore, crude oil price volatility exhibits asymmetric responses to production volatility by fluctuating above or below the threshold value. Finally, when crude oil price volatility with a lag of two periods exceeds the threshold value, crude oil production changes have a positive impact on crude oil price volatility. In contrast, when crude oil price volatility with a lag of two periods is less than the threshold value, crude oil production changes have a negative impact on price volatility.

Crude oil price–shale oil production nexus: a predictability analysis

2020 ◽  
Vol 14 (4) ◽  
pp. 729-744 ◽  
Author(s):  
Sam O. Olofin ◽  
Tirimisiyu Folorunsho Oloko ◽  
Kazeem O. Isah ◽  
Ahamuefula Ephraim Ogbonna
Keyword(s):  
Crude Oil ◽  
Predictive Model ◽  
Good Predictor ◽  
Forecast Accuracy ◽  
Oil Production ◽  
Oil Price ◽  
Shale Oil ◽  
Reverse Causality ◽  
Crude Oil Price ◽  
Content Type

Purpose The purpose of this study is to investigate the predictability of crude oil price and shale oil production, in a bid to examine the possibility of bi-directional causality. Design/methodology/approach The study adopts a recently developed predictability model by Westerlund and Narayan (2015), which accounts for persistence, endogeneity and heteroscedasticity. It also accounts for structural breaks in the predictive models. Findings The empirical results show that only a unidirectional causal relationship from crude oil price to shale oil production exists. This happens as crude oil price appears to be a good predictor of shale oil production; however, shale oil production does not serve as a good predictor for crude oil price. Accounting for structural break was found to improve the predictability and forecast accuracy of the predictive model. Our result is robust to choice of crude oil price benchmarks (West Texas Intermediate, Brent, Dubai Fateh and Refiners’ Acquisition Cost) and their denominations (real or nominal). Research limitations/implications The result implies that crude oil price must be considered when predicting shale oil production. Meanwhile, the non-significance of shale of production in crude oil price predictive model provides information to potential analyst, researchers and countries predicting crude oil price that failure to account for the effect of shale oil production would not have significant impact on the forecast accuracy of their models. Originality/value The study contributes originally to the literature on crude oil price–shale oil production in four major ways. First, it applies a recently developed predictability method by Westerlund and Narayan (2015), which is more suitable for dealing with persistence, conditional heteroscedasticity and endogeneity in the predictors. Second, it investigates existence of reverse causality between crude oil price and shale oil production. Third, it examines the variation in the response and effect of four major crude oil price benchmarks. Fourth, it considers crude oil price in both real and nominal terms.

scholarly journals Effectiveness of Artificial Neural Networks in Hedging Against WTI Crude Oil Price Risk

Energies ◽  
2021 ◽  
Vol 14 (11) ◽  
pp. 3308
Author(s):  
Radosław Puka ◽  
Bartosz Łamasz ◽  
Marek Michalski
Keyword(s):  
Neural Networks ◽  
Artificial Neural Networks ◽  
Crude Oil ◽  
Renewable Energy Sources ◽  
Classification Problem ◽  
Oil Price ◽  
Price Risk ◽  
Call Option ◽  
Artificial Neural ◽  
Oil Price Risk

Despite the growing share of renewable energy sources, most of the world energy supply is still based on hydrocarbons and the vast majority of world transport is fuelled by oil products. Thus, the profitability of many companies may depend on the effective management of oil price risk. In this article, we analysed the effectiveness of artificial neural networks in hedging against the risk of WTI crude oil prices increase. This was reformulated from a regressive problem to a classification problem. The effectiveness of our approach, using artificial neural networks to classify observations, was verified for over ten years of WTI futures quotes, starting from 2009. The data analysis presented in this paper confirmed that the buyer of a call option was more often likely to incur a loss as a result of its purchase than make a profit after the final payoff from the call option. The results of the conducted research confirm that neural networks can be an effective form of protection against the risk of price fluctuations. The effectiveness of a network’s operation depends on the choice of assessment indicators, but analyses show that the networks which, for the indicator that was selected, gave the best results for the training set, also resulted in positive rates of return for the test set. Significantly, we also showed interdependence between seemingly unrelated indicators: percentage of the best possible results achieved in the analysed period of time by the proposed method and percentage of all available call options that were purchased based on the results from the networks that were used.

scholarly journals Oil and gas business in changing times

2017 ◽  
Vol 11 (1) ◽  
pp. 9-24
Author(s):  
Sergiu Brasoveanu
Keyword(s):  
Crude Oil ◽  
Value Chain ◽  
Corporate Strategy ◽  
Oil Production ◽  
Oil Price ◽  
The Other ◽  
Crude Oil Price ◽  
Oil Companies ◽  
Cost Cutting ◽  
Other Hand

Abstract The top 5 oil majors (British Petroleum, ExxonMobil, Total, Chevron and Royal Dutch Shell) are analyzed in terms of investments, earnings and financial & operational performance along the entire business value chain, for a period of 5 years. One of the key objectives is to understand how the Upstream and Downstream segments may play different roles in the definition of a winning corporate strategy, considering how they may reveal very different strengths and weaknesses during crude oil price crises. When the crude oil price goes down, the upstream sector is running big cost cutting measures, in order to reduce expenditures and keep acceptable gross margins per barrel of oil equivalent. On the other hand, the downstream segment receives cheaper raw material without a significant decrease in the final price of the oil products. Thus, how can oil companies leverage this flexibility in order to pass successfully through periods of crude oil price slides, and even take advantage of those? The paper aims to analyze the correlation between oil price and oil volume produced on one hand, and investments and earnings, split by business segments, on the other hand. The variation of investment and earnings is hence compared to crude oil price fluctuations for a clearer picture of the business profitability per segment during the peak and bottom periods of the oil market. Upstream and Downstream segments are also benchmarked against each other to understand the role that each of them is playing in the industry. The results are expected to provide some trend lines to understand how much the cost cutting measures are impacting the overall business, as well as to appreciate whether the reduction in the oil production, which in theory should be followed by a rise in prices, is indeed in the best interest of the oil majors. Going further into analysis, the paper is trying to define an optimum production interval, that will maximize profits along the entire value chain (upstream and downstream) of the oil business, defined by both the production volume of crude oil (replacement cost per barrel in accordance with volume), as well as the price per barrel of oil equivalent. The analysis takes into account official sources exclusively, i.e. oil companies’ websites, corporate crude oil production reports, annual financial reports and investors’ analyses.

scholarly journals The Comparative Advantage of Crude Oil in the Top 10 Oil-Producing Countries

2019 ◽  
Author(s):  
Osama Elsalih ◽  
Kamil Sertoğlu ◽  
Mustafa Besim ◽  
Abdelhakim Embaya
Keyword(s):  
Crude Oil ◽  
Comparative Advantage ◽  
Oil Production ◽  
Panel Estimation ◽  
Crude Oil Price ◽  
Panel Ardl ◽  
Long Run ◽  
Crude Oil Production ◽  
The Usa ◽  
Short Run

This paper investigates the comparative advantage of crude oil in the top 10 oil-producing countries through computing the Normalized Revealed Comparative Advantage (NRCA) index and further examines the determinants of this advantage using panel estimation technique. The results of the NRCA index showed that during the study period of 27 years (1990-2016) not all the top10 oil-producing countries have a comparative advantage in crude oil production. Countries like Iran, Iraq, Kuwait, Russia, Saudi, and UAE are found to have a comparative advantage in producing crude oil, while countries like Brazil, China, and the USA have no comparative advantage in producing crude oil. For Canada, its comparative advantage is only revealed just between 2006 and 2016. The result of the Panel ARDL suggested that in the long run, crude oil price (COP) and daily average of crude oil production (DAP) are found to be positive and significantly related to NRCA, whereas proven reserve (PR) and domestic demand for oil (DDO) are negative and significantly related to NRCA. In the short run, COP, ADP, and DDO have the same effect as in the long run and significantly related to NRCA, while PR is statistically insignificant. Finally, a bidirectional Granger-causality is detected between the variables except for the PR and NRCA where a unidirectional causality runs from PR to NRCA.

OIL PRICE RISK MANAGEMENT IN THE 1990s—ISSUES FOR PRODUCERS AND LENDERS

1994 ◽  
Vol 34 (1) ◽  
pp. 872
Author(s):  
Steve Lambert
Keyword(s):  
Risk Management ◽  
Price Volatility ◽  
Oil Price ◽  
Price Risk ◽  
Option Markets ◽  
Oil Price Volatility ◽  
Floor Price ◽  
Petroleum Companies ◽  
Oil Price Risk

Oil prices have exhibited considerable volatility over the past five or ten years and the management of oil price risk has become an important factor in underpinning the viability of many oil producing operations from both a lender's and investor's perspective. Various oil based hedging products are now available to protect against such volatility, ranging from products which fix forward prices to option based arrangements which set a floor price but retain some (or all) of the potential upside. These products have particular relevance for petroleum companies with limited financial resources or who are looking to limit recourse to particular assets/cashflows.There are a number of techniques which can be successfully combined to mitigate oil price volatility and the most relevant of these to a producer are discussed. The recent development of the Tapis swap and option markets, which have provided flexibility to Australasian producers, is also discussed.Oil based financial products can also be used as a method of funding (say for a development or acquisition) as an alternative to traditional cash based borrowing structures, thus creating a natural hedge against oil price movements. The use of such structures, coupled with a well structured revenue hedging program, can enhance a project's attractiveness from a lender's perspective (particularly with respect to protection against downside movements in oil price) and/or provide greater certainty of returns to producers.A case study of a recent commodity risk management based financing is presented which highlights many of the points discussed.

scholarly journals Logistics Aspect of Offshore Support Vessels on the West Africa Market

2013 ◽  
Vol 25 (6) ◽  
pp. 587-593 ◽  
Author(s):  
Ivica Skoko ◽  
Marinko Jurčević ◽  
Diana Božić
Keyword(s):  
West Africa ◽  
Crude Oil ◽  
Oil Production ◽  
World Market ◽  
Oil Price ◽  
Crude Oil Price ◽  
Oil Companies ◽  
Energy Needs ◽  
Offshore Oil Production ◽  
Offshore Oil

With the rapidly increasing global energy needs, offshore oil production has become an attractive source of energy. Supplying offshore oil production installations is a complex logistics problem that hinges on many factors with significant uncertainties. So, it is critical to provide the necessary supplies and services without interruption. In a typical offshore oil production effort, oil companies charter most or all drilling units as well as offshore supply vessels (OSV). The type and duration of charter contract has direct impact on the project budget as vessels market is closely correlated with the world market crude oil price which can have daily significant fluctuations. As the region of West Africa is one of the world’s busiest offshore exploration and oil production markets employing 12% of the world’s fleet, exploring its issues, was taken to study the relations between daily OSV rates and crude oil price. The research results presented in this paper show correlation between OSV daily rates and crude oil price with broader fluctuations in crude oil price. 

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