Promoting financial stability of oil producers: Operational vs. financial hedging

Yiwei Fang, Sang Baum Kang and You Lu

Journal of Financial Stability, 2023, vol. 67, issue C

Abstract: This paper investigates the effects of operational hedging on commodity price risks. It explores a novel type of operational hedging, i.e., the natural operational hedge position between upstream crude oil production and downstream activities in the supply chain. Using hand-collected data from 293 unique oil-producing firms, we find that operational hedging is sufficiently effective in reducing firms’ exposure to oil-price risk. We also find an inverse relationship between operational and financial hedging, suggesting that they can substitute for each other.

Keywords: Operational hedging; Financial hedging; Oil producer; Risk management (search for similar items in EconPapers)
JEL-codes: G30 G32 L1 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:67:y:2023:i:c:s1572308923000529

DOI: 10.1016/j.jfs.2023.101152

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