Variation In Oil Price Risk In The Energy Sector

Abstract

Mixed findings have resulted from the analyses of oil price risk as a systematic risk factor. Studies in the past have researched the effects of oil shocks on various macroeconomic variables; however, this paper is primarily concerned with the effect of oil prices on company share price returns within the energy sector due to the dramatic decrease in oil prices beginning in June 2014. By using statistical testing, including multivariate regressions, the relationship between the share prices of energy industry subsector companies and oil prices will be examined. This paper will present evidence that WTI crude and Brent crude does play a systematic role in the oilfield services, exploration and production, midstream, and integrated company share price returns, and will examine the differing levels of exposure to oil price risk between the different energy industry subsectors. The tests do not support the presence of oil price risk in the downstream subsector.