Navigating energy volatility: Understanding the principles of commodity risk management

摘要

The persistent volatility of energy prices is well known,and sustained price movements have fueled a boom-and-bust cycle in different energy sectors for decades.Effective commodity risk management inevitably gives way to price risk management.This,in turn,implies that an enterprise knows what price risks it faces and that it has decided to do something about it-even if that something is nothing.In helping companies build,evaluate or repair commodity risk management activities in the decades since US energy deregulation began in 1980,a few enduring principles stand out.Our view is that effective price risk management is founded on a thoughtful,board-directed view of risk appetite considering the commercial strategies being employed.In turn,this top-down directive empowers the development of a measurable business case linked to a risk management policy and multi-layered limits to ensure that everyone in the organization is on the same page-from traders/risk managers to investor relations.