How energy companies hedge against global oil price volatility
The Challenge of Oil Price Volatility
– Fluctuations driven by geopolitical tensions, OPEC decisions, and demand-supply dynamics. – Energy companies face risks in revenue and operational costs.
Forward Contracts
– Companies secure oil prices in advance to avoid future cost spikes. – Ensures stable expenses for refining and distribution operations.
Futures and Options
– Futures contracts allow companies to buy or sell oil at predetermined prices. – Options give flexibility to benefit from favorable price movements while capping losses
Diversification of Revenue Streams
– Investing in renewable energy, natural gas, and biofuels. – Reduced dependency on crude oil prices stabilizes overall revenues.
Vertical Integration
– Owning upstream, midstream, and downstream assets. – Helps energy companies balance losses in one segment with gains in another.