606OGE Energy Trading and Economics - Coventry University

Background:

‘The global economy and oil markets are recovering from the historic collapse in demand caused by the coronavirus (Covid-19) pandemic in 2020. The staggering inventory surplus that built up in the last 2 years is being worked off and global oil stocks, excluding strategic reserves, will return to pre-pandemic levels in 2022. And yet, there may be no return to "normal" for the oil market in the post-Covid era.'

IEA, 2022

TASK: Managing oil price risk by downstream oil and gas operators

You are required to write a 2,500 words report analysing the impact that volatile oil prices and stagnant demand have on global oil companies explaining how these companies can mitigate some of the risks and protect their business operations. The report should include the following aspects:

1. Introduction to the topics
2. Analyse the current trends in global oil supply and demand and how these trends are impacting oil prices.
3. Examine the relationship between supply and demand and price movements. You should highlight the main factors driving these price movements within the context of price formation theory and practice.
4. Examine some of the strategies oil companies can deploy to mitigate the risks of adverse price movements focusing particularly on the use of derivative contracts as a defensive mechanism to protect their business operations.
5. Differentiate between Spot prices and Futures price contracts and analyse the effectiveness of
Futures contracts as hedging instruments providing appropriate examples.

6. Conclusion

Learning outcome 1: Evaluate and critically assess oil price determinants and the major prices drivers of the markets;

Learning outcome 2: Critically evaluate price formation theory and practice;

Learning outcome 3: Critically analyse the spot and futures markets;

Learning outcome 4: Evaluate the effectiveness of derivative contracts;

Attachment:- Energy Trading and Economics.rar