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Time is Money: Mitigating Delivery Risk
HOUSTON– August 28, 2011 – For producers and suppliers of oil and gas, the standard industry practice of waiting up to two months for payment represents significant credit risk. Delivery risk is similar to a loan. If you wouldn't lend (for one to two months) a counterparty an amount equal to the full payment for the physical commodity, then you probably shouldn't deliver the physical commodity without taking steps to mitigate your risk. Understanding how to calculate and mitigate delivery risk is critical to market participants around the world that deliver or receive physical commodities.
HOUSTON– August 28, 2011 – For producers and suppliers of oil and gas, the standard industry practice of waiting up to two months for payment represents significant credit risk. Delivery risk is similar to a loan. If you wouldn't lend (for one to two months) a counterparty an amount equal to the full payment for the physical commodity, then you probably shouldn't deliver the physical commodity without taking steps to mitigate your risk. Understanding how to calculate and mitigate delivery risk is critical to market participants around the world that deliver or receive physical commodities.
Brian Shydlo of Sirius Solutions offers some solutions for measuring and mitigating this delivery risk. Brian is a Director in Sirius Solutions' energy consulting service line. He has over 15 years' experience in energy trading, risk management and scheduling software packages.
Please view a copy of the complete Time is Money: Mitigating Delivery Risk article.
