Treasury and Risk Management

Liquidity risk is that type of risk which arises out of an inability to execute transactions, but insolvency risk materialized when a corporation cannot meet its financial obligations as they fall due.

Effective working capital management in the oil industry involves optimizing current assets and liabilities to ensure liquidity and maximize profitability. Here are some key strategies:

Cash Management:

• Monitor cash flows, considering volatile oil prices
• Optimize cash pooling and treasury management

Accounts Receivable (A/R) Management:

• Implement efficient invoicing and collection processes
• Consider factoring or securitization for improved cash flow

Inventory Management:

• Optimize inventory levels, considering storage costs and market volatility
• Implement just in time (JIT) inventory management

Accounts Payable (A/P) Management:

• Negotiate favorable payment terms with suppliers
• Consider dynamic discounting or supply chain financing

Risk Management:

• Hedge against commodity price risks (e.g., oil price volatility)
• Monitor and manage currency exchange risks

M&A (Mergers and Acquisitions) can help grow a business faster than organic growth in several ways:

• Speed: M&A provides immediate access to new markets, products, or technologies, accelerating growth.
• Scale: Acquiring existing businesses can quickly increase revenue, customer base, and market share.
• Synergies: Combining companies can create cost savings, improve efficiency, and enhance competitiveness.
• Diversification: M&A can reduce dependence on a single product or market, spreading risk.
• Access to new capabilities: Acquire talent, technology, or expertise to enhance offerings or competitiveness.

Organic growth, on the other hand, relies on internal development and can be slower.

Indicators of a good, quality risk statement are that it can answer the following questions:

• What could happen?
• Why could it happen?
• Why should an enterprise care?

Internal Audit (IA):

• Independent function that provides assurance on governance, risk management, and internal controls.
• Focuses on evaluating and improving effectiveness of risk management, control, and governance processes.
• Typically reports to audit committee or board.

Enterprise Risk Management (ERM):

• Framework for identifying, assessing, and managing risks across the organization.
• Focuses on strategic risk management, aligning risk management with business objectives.
• Often overseen by risk management or executive leadership.

Key difference: IA provides assurance on risk management, while ERM is the actual process of managing risks.

OTC (Over The Counter):

• Trades are done directly between two parties, often through a broker or dealer
• Customized contracts, flexible terms, and no central clearing
• Examples: Forward contracts, swaps, exotic options

Central Exchange:

• Trades are executed on a regulated exchange, with standardized contracts
• Central clearing, higher liquidity, and transparent pricing
• Examples: Futures, listed options, ETFs

Key differences for hedging:

• Customization: OTC offers tailored solutions, while exchanges offer standardized products.
• Counterparty risk: OTC involves bilateral risk, exchanges have central clearing to mitigate risk.
• Liquidity: Exchanges typically offer higher liquidity.

• In statistics, correlation measures the strength and direction of the relationship between two or more variables. It indicates how much one variable tends to change in relation to another.
• Types of correlations: Positive correlation, negative correlation, zero correlation etc

Hamilton’s three indicators are significantly correlated with global oil demand.

• First, higher copper prices are associated with higher oil prices. Specifically, when copper prices increase by 1 percent, oil prices tend to increase about 0.3 percent
• Second, higher U.S. government bond yield also correlates positively with higher oil prices. For example, the estimated coefficient suggests that a 10 basis point increase in 10-year Treasury yields is associated with a 1.6 percent increase in oil prices.
• Finally, a stronger U.S. dollar tends to generate significant downward pressure on oil prices. Oil prices are likely to fall by 2.3 percent when the dollar appreciates by 1 percent.

Yes. GLOMACS offers customised and in-house delivery options. The content of this training course can be tailored to reflect an organisation’s specific strategic objectives, workforce challenges, and data maturity, ensuring maximum relevance and impact. 

 For further details or to discuss customisation requirements, you may call us on +971 (56) 538 7389 or email inhouse@glomacs.com . You can also submit a detailed enquiry through our in-house training page at: https://glomacs.com/in-house-seminars

If you would like further information about these training courses, our team is available to provide professional guidance and support. We are pleased to assist with course selection, the registration process, and any related enquiries.

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