How to categorise risks in the Oil market?

Discussion in 'Commodity Futures' started by Rickylee, Sep 6, 2018.

  1. Rickylee


    hi all,

    I have been thinking of a way to categorise risks in the oil market and have come up with a theory, I would love to hear any thoughts.

    There appear to be 2 types of risks to the dynamics of the oil markets; tangeable and intangeable.

    Tangeable risks relate to problems around operational capacity. E.g. a pipeline failure, hurricanes closing oil rigs, degradation of equipment, maintenance on plant etc.

    Intangeable risks are those relating to political political or social issues. E.g. trumps sanctions on Iran, public opinion away from fossil fuels (which leads to a tangeable risk of reduced conventional car sales), political or military stake mates as white saws in Libya this year.

    Both risks can be viewed in different ways. Obviously it is simpler to overcome an intangeable risk than a tamgeable risk e.g. it is easier to waiver sanctions on Iran than it is to rescue the failing Venezuelan oil industry.

    Would love to hear any thoughts.



    (Part time oil market enthusiast)
  2. Robert Morse

    Robert Morse Sponsor

    Although I would not have called them tangible and intangible, those are risks to supply but you have not addressed the risk to demand.
  3. Rickylee


    Hi Robert,

    Thanks for the reply.

    This thinking is in development so it may be that there is a better way to categorise the 2 types that I am proposing but, to your point of risks to demand, if I were to apply the tangeable and intangeable categories,

    Intangeable risk to demand

    Chinese tarrifs on us oil

    Tangeable risk to demand

    An economic crisis

    I suppose what I am trying to do is simplify and categorise the risks facing the market.

    Intangible risks, to use my examples, are those which have been implemented with intention or as a result of some political deadlock. Tarrifs, sanctions, negotiations etc.

    Tangible risks are those which occur due to a physical change in the market dynamics, a change to either supply or demand, like a reduction in the amount of trade due to a financial crisis etc.

    It is easier to overcome an intangible risk than a tangible risk e.g. trump could change his mind about Iran tomorrow and oil would be back on the market quickly.

    However it would be more difficult to restore supply by rescuing Venezuela’s economy.

    What are your thoughts?


  4. srinir


    For commodities in general price (and risks) affected by positive and negative shocks of both supply and demand.

    * Negative supply shock include Oil embargo, Iraq war
    * Positive supply shock like fracking
    * Negative demand shock: recessions like 2008
    * Positive demand shock: Roaring emerging markets during 2003-2007

    For non-us investors currency is also another risk, since crude is priced in dollars
  5. Rickylee


    Thanks for your comments.
  6. Rickylee


    The categories that I am proposing are relevant when it comes to speculating the short term future of the oil market.

    What is likely to occur?

    How could the oil market be manipulated by vested interests?

    Intangible risks are easier to manipulate than tangible ones.
  7. 5 major risks of the Oil market are mentioned below:

    1. Political Risk in Oil and Gas Companies
    2. Geological Risk in Oil and Gas Companies
    3. Price Risk in Oil and Gas Companies
    4. Supply and Demand Risks in Oil and Gas Companies
    5. Cost Risks in Oil and Gas Companies