Hedging Oil Production: Profitability Concerns and Instruments Used

Author(s)	Dr. Roopam Agrawal, Dr. Kavita Chakravarty
Country	India
Abstract	This paper investigates the effectiveness of hedging strategies in the oil and gas industry, focusing on volatility management and profitability implications. Using multivariate volatility models Constant Conditional Correlation (CCC), VARMA-GARCH, Dynamic Conditional Correlation (DCC), and BEKK applied to Brent and WTI crude oil spot and futures returns, the study evaluates optimal portfolio weights and hedge ratios. Results indicate that futures contracts generally outperform spot positions in reducing portfolio variance, with the DCC model emerging as the most effective. Comparative analysis of ExxonMobil, Chevron, and Halliburton reveals diverse hedging approaches: ExxonMobil relies on natural hedges, Chevron employs derivatives and supply chain adjustments, while Halliburton uses financial instruments to stabilize service costs. Findings highlight the critical role of hedging in mitigating price risk, managing basis risk, and sustaining profitability in volatile energy markets.
Keywords	Crude oil hedging, GARCH models, hedge ratios, portfolio volatility, ExxonMobil, Chevron, Halliburton
Published In	Volume 7, Issue 6, November-December 2025
Published On	2025-12-25
DOI	https://doi.org/10.36948/ijfmr.2025.v07i06.65933

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