Mapping and Measuring the Channels of Oil Price Exposure in the Economy and the Role of Oil Derivatives in Reshaping Them

John E. Parsons,

October 2013

This paper provides a framework for understanding how the trade in oil derivatives relates to the physical production and use of oil in the economy. We use this framework to benchmark the scale of investment in exposure to oil prices made using futures, options and other derivatives. The paper reviews the available research on the valuation of oil reserves and on how companies use oil derivatives for hedging. We identify the inadequacy of the publicly available statistics on the OTC derivatives markets, and the limited research and statistics available on the financial channels of oil exposures.