EVALUATING FUTURES-BASED HEDGING STRATEGIES: ASSESSING EFFECTIVENESS AND COST EFFICIENCY DURING CRUDE OIL PRICE SHOCKS
Bryan, David
Bryan, David
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2025-05-19
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This study evaluates the performance and cost efficiency of short futures-based hedging strategies for crude oil producers during major price shocks, using a comparative back testing framework across varying contract maturities (3-month, 6-month, and 12-month) and hedge ratio methodologies (static vs. dynamic). By analyzing both supply and demand driven shocks including the 1990 Gulf War, 2008 Financial Crisis, 2014 OPEC Price War, 2020 COVID-19 Pandemic, and the 2022 Russian invasion of Ukraine, this study identifies strategy effectiveness based on shock direction, duration, and cause. The findings show that the 6-month static hedge delivers the most consistently balanced performance across scenarios, offering both strong downside protection and manageable rollover and margin costs. These insights offer a practical framework for producers seeking adaptable yet cost-conscious hedging strategies amidst uncertain oil market conditions.
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Finance