Managing oil and gas delivery risk
For producers and suppliers of oil and gas, the standard industry practice of waiting up to two months for payment represents significant credit risk. Brian Shydlo offers some solutions for measuring and mitigating this delivery risk
For logistical reasons, payment for physical oil and gas trades is not usually possible for between three and eight weeks after the delivery of the commodity. This represents significant credit risk for the seller, many times greater than the risk involved in the lag in payment on financially settled trades. Oil and gas sellers should know how to calculate this risk on a daily basis and understand the methods available for mitigating it.
Some readers may already be familiar with the credit
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