Economics and Finance-Risk and Uncertainty in Coal and Oil Markets

This research paper focuses on the financial and economic risks and uncertainties faced by the oil and coal industry of Australia. It aims to recognize the uncertainties present within the industry and analyze the related risks in finance and economy of the nation. The paper discusses the categories of risk and uncertainties in the oil and coal market, the structure of financial and economic risk management in the industry, and presents research hypotheses. The paper is relevant for students studying economics and finance, and for professionals in the energy sector.

Running head: ECONOMICS AND FINANCE RISK IN COAL AND OIL MARKETS
Economics and Finance-Risk and Uncertainty in Coal and Oil Markets
Name of the University:
Name of the Student:
Authors Note:

1ECONOMICS AND FINANCE RISK IN COAL AND OIL MARKETS
Table of Contents
1. Introduction......................................................................................................................2
2. Problem Statement...........................................................................................................2
3. Aim and Objectives of the Research...............................................................................3
4. Justification and Likely Research Outcome....................................................................4
5. Conceptual Framework and Hypotheses.........................................................................5
5.1. Categories of Risk and Uncertainties in Oil and Coal Market.................................5
5.2. Structure of Financial and Economic Risk Management in Oil and Coal Market...6
5.3. Research Hypotheses................................................................................................8
6. Research Methodology....................................................................................................8
6.1. Research Approach and Data Sources......................................................................8
6.2. Data Collection and Analysis...................................................................................9
6.3. Research Structure..................................................................................................10
6.4. Budget, Gantt Chart and Research Activities.........................................................11
References..........................................................................................................................14

2ECONOMICS AND FINANCE RISK IN COAL AND OIL MARKETS
1. Introduction
Interest within the oil and coal-based investments and related financial risk management
has been developing for over the future financial years. Among the most vital energy
commodities is deemed to be the crude oil that is accompanied by increasingly uncertain and
volatile prices. Crude oil is deemed to be a vital aspect of the economic and the business
activities within any economy (Mack, 2014). For this reason, realizing the price movement is
deemed to be necessary for better business and economic decision making by managers within
the oil and coal industry of Australia. In addition, the crude oil, coal along with other energy
commodities has turned out to be among the highly active energy assets within Australia. From
the current publications represented by “International Renewable Energy Agency (IRENA)” it
has been gathered that the energy industry is dealing with the issues related with leaving more
than $10 trillion in the oil, gas and coal along with other associated assets (Mackey & Gass,
2015). Few other reports published by the Australian government revealed that the energy
industry operate on the precarious economic grounds that is experiencing new threats for the
organizations focused on oil, gas and coal fossil fuels.
2. Problem Statement
The major problem based on which the researcher has decided to carry out research on
this topic is focused issues raised by the previous literature. It was gathered that several risks and
uncertainties are faced by the oil and coal industry of Australia as per the report published by
“International Renewable Energy Agency (IRENA)”. Such issues have also been identified from
other publications as referred to declining of oil market in 2014. In addition, over the future years
oil company reserves is deemed to drop by at least $22 trillion that is observed to be equal to

3ECONOMICS AND FINANCE RISK IN COAL AND OIL MARKETS
twice the China’s GDP (Monasterolo et al., 2016). Declining local oil and coal industry is
another concern faced in the energy sector these days. Several government publications on
renewable and non-renewable energy indicated that in the year 2015, more than 94 organizations
operating in the energy sector collapsed and the other 41 energy-based organizations shut down
in the year 2016 (Slee, 2017). In some of the areas within United States it has been gathered that
unsubsidized Solar energy is observed to attain more consideration for the investors as well as
public concern regarding the climate risk requirements that must also be taken into account. Such
risks will also be able to associate the economic risks that are present within the oil and coal
market at the time of increasing investor along with public concern for the climate risk observed
within the fossil fuel industry. The current research is focused on offering vital implications
retarding the present understanding of risk management within crude oil and coal market. The
major scope of this research is to observe the finance and economic risks associated with process
of the crude oil and coal future contracts (Smith, 2017). It also offers analysis of the relationship
between the oil prices and the economic or financial variables. Another factor is persistence that
is present in data and economic oil prices transmission itself.
3. Aim and Objectives of the Research
The aim of the current research that is to be addressed after its completion is to recognize
the uncertainties those are present within the oil and coal industry of Australia along with
analyzing the related risks in finance and economy of the nation. The research objectives that are
to be met in the research are explained under:
 To identify the financial uncertainties that results in increased risks within the coal
market

4ECONOMICS AND FINANCE RISK IN COAL AND OIL MARKETS
 To recognize the vital economic risks resulting in uncertainty to the coal industry
 To reveal the financial threats for the organizations related with the oil industry
 To evaluate the economic risks that can result in uncertainty within the oil industry
4. Justification and Likely Research Outcome
The current research is deemed to offer certain important research implications focused
on complex oil and coal prices. The research will also explain the demand and supply followed
by the inventories along with the storage that serves as the intermediary along with being a
market making process between the demand and supply (Soeder et al., 2014). The current
research will contribute to the literature regarding the co-movement of crude oil along with the
coal prices within the fossil fuel market. This will be revealed through investigating the co-
movement type employing the futures prices. The analysis carried out in this research will reveal
that the higher coal price volatility that ultimately decreases the value of the project. For this
reason, realizing the price movement is deemed to be necessary for better business and economic
decision making by managers within the oil and coal industry of Australia (Taylor, Bogdan &
DeVault, 2015). In addition, the crude oil, coal along with other energy commodities has turned
out to be among the highly active energy assets within Australia. It will also indicate that not just
the dynamics of oil and coal are important but also the co-movement nature of the process
related with gas and oil products in such research outcomes, an important factor that is to be
taken into consideration that valuation along with optimal operation. The valuation leads to
encompass a long-term relationship between the oil and coal market that can serve in taking a
crucial decision for valuing the project along with its suitable business operation. The research
findings are also deemed to reveal that ignoring such long-term relationship makes the optimal
policy highly sensitive to the dynamics of the coal and oil prices (Tulloch, Diaz-Rainey &

5ECONOMICS AND FINANCE RISK IN COAL AND OIL MARKETS
Premachandra, 2016). It will also be gathered from the research results that the interest rate
premium, foreign exchange rate risks, return on the coal and oil price remains statistically
significant in determining a high return on the shares of coal and oil companies in Australia.
Several risk factors related with the coal and oil companies in Australia will also be revealed
through this research. Based on the financial and economic risks and uncertainties faced by the
companies the process to deal with these risks will be identified. This includes dealing with
market and industry risks that is a major part of financial and economic risk through proper use
of derivative market and active trading (Vaioleti, 2016).
5. Conceptual Framework and Hypotheses
5.1. Categories of Risk and Uncertainties in Oil and Coal Market
Bergmann, (2016) explained that financial risks experienced by the oil and coal market is
associated with the trading assets within the industry or the inability to trade specific assets. Such
risk describes the liquidity risk that is explained as the type of risk taking place from carrying out
transactions within the industry that has decreased liquidity. Berkey, (2016) explained that
operating in such economic marketplace can have negative implications on the company’s oil
and coal assets as well as its prices. It is also gathered that in the energy industry of Australia
making attempts to sell oil and coal assets might push prices lower and they will have to be sold
at prices below their normal value or in a timeframe longer than anticipated.
Within the macroeconomic envirinmet, the oil and coal companies are observed to the
major players and there are highly aware of the economic uncertainties faced by them by the
market and from fluctuations in the commodity prices. According to Bryan, (2016) the economic
risks are faced by the oil and coal companies in nations are because of the fluctuating global

6ECONOMICS AND FINANCE RISK IN COAL AND OIL MARKETS
prices of crude oil, coal and gas along with some by-product chemicals. There are also vital
implications of the buoyancy within the energy sector. It is also stated by these researchers that
oil and coal prices volatility take place from the economy’s decreased tolerance to the increased
oil prices. In contrast, Christophers, (2016) presented a view that there is a drive to constrain oil
and coal demand in the Australian energy market in order to prevent the climate change and
improve energy security that also threatens the profitability of the oil and coal companies as a
whole. Economic control over the uncertainties is deemed to include regulatory as well as
liability concerns focused on the regulations of crude oil trading along with the volatility of the
market. Cowell, (2017) indicated that the financial risks include the concerns focused on the
drilling and production of the crude oil and coal, the later uncertainty is associated with the
liquidity risk that is caused by certain implications that can have a drastic impact on capability of
oil and coal company’s ability to harvest as well as locate new sources. These reasechers also
indicated that another financial risk that is likely to be faced by the oil and coal market is the
credit risk. According to the views presented by Flick, (2015) it has been gathered that a change
in the credit quality in trading between two parties for crude oil and coal is deemed to negatively
affect the security value or that of the portfolio. Such risks can result in the oil and coal
companies to face the possibility of getting default and in this the counter party is to any more in
a position for the causes to address all the contractual obligations present within the energy
market.
5.2. Structure of Financial and Economic Risk Management in Oil and Coal Market
According to Roula, (2015) in the nature of financial and economic risk along with its
omnipresence on its mitigation, managing as well as supervising encompass the matters of the
financial nature which needs a discipline dedicated towards the end. Risks that are faced by the

7ECONOMICS AND FINANCE RISK IN COAL AND OIL MARKETS
oil and coal companies are deemed to take place from certain environmental changes. Such
changes are associated with the factors related with the changes in the interest, market as well as
change rate risks. Frisari and Stadelmann, (2015) also stated that the financial risks that are
observed outside the company’s engagement or interaction takes place from the transactions with
the consumers, sellers and several other parties. Considering the same, the financial risk
management within the oil and coal market is observed to impact the internal as well as external
business operations of the related companies. Gary, (2018) explained economic risks
management to be a discipline to deal with the uncertainties that took place from the economic
market. Additional information is also provided that considers analyzing the economic risks
faced by the oil and coal market along with developing effective management strategies
consistent with internal policies present within the industry.
Hahnenstein, Köchling and Posch, (2018) indicated that management of the financial
risks happens to be a reliable platform in attaining a detailed understanding of the causes that are
causing it and it does not exclude the requirement to get involved in risky activities. For this
reason, the risks and its management that are considered are not deemed to be mutually
exclusive. These reasechers have also explained the economic and financial risks management
process that includes identifying risks, measuring exposure, performance, measure, estimation
and recognizing the techniques to mitigate them. Halland et al., (2014) evidenced that the
economic risk management process has developed another image of effective risk management.
Considering same, measurement of economic risk is followed by recognition of
instrument related with the trading risk. Such economic risk management process includes two
significant activities stream. Both of these models are considered to be a sequential process in
which the oil and coal companies get involved in certain interrelated activities which are

8ECONOMICS AND FINANCE RISK IN COAL AND OIL MARKETS
monitored as well as analyzed in this process. Hasan, (2016) explained the type of investments
that are made by the oil and coal companies to deal with the economic and financial risks that
further facilitates in maintaining stability if the volatility in the value of such organizations.
These reasechers have also recommended that among the advantages of economic risk
management within the companies operating in oil and coal market it is likely to increase
company value along with decreasing the financial distress possibility. Lewis, (2015) added that
the value of the energy sector companies is likely to experience fluctuations in the interest rates,
foreign exchange along with the commodity prices that includes oil and coal fossil fuels.
5.3. Research Hypotheses
The research hypotheses that are to be provided through accomplishment of the current
research are explained under:
 Hypothesis 1: The financial uncertainties has positive impact on increasing increased
risks within the coal market
 Hypothesis 2: The vital economic risks has positive impact on resulting in uncertainty to
the coal industry
 Hypothesis 3: The financial threats for the organizations has positive impact on
increasing uncertainties within the oil industry
 Hypothesis 4: The economic risks has positive impact on increasing uncertainty within
the oil industry

9ECONOMICS AND FINANCE RISK IN COAL AND OIL MARKETS
6. Research Methodology
6.1. Research Approach and Data Sources
The research survey that will be carried out in the research of financial and economical
risks faced by the oil and coal companies will include the respondents from both the coal along
with oil industries (Mackey & Gass, 2015). These respondents will be selected in a manner that
they are the suitable people those can identify the distinct type of financial as well as economic
issues that results to the uncertainties of the companies operating within the fossil fuels industry.
The respondents will be divided into two major divisions such as middle level employee’s as
well as the managers that works within the oil and coal industry in the Australian market. Mixed
research approach will be employed in the current research. Moreover, qualitative research
approach will be employed considering its benefit that it can support in using the semi-structured
and the unstructured techniques (Monasterolo et al., 2016). This research approach is also
focused on uncovering trends in the thoughts and viewpoints with offering detailed view within
the recognized research problem. Quantitative approach of reassert will be used that can indicate
the relevancy of the information that will be valuating in collection of important data that can
provide relevant research results.
The aim of the current research that is to be addressed after its completion is to recognize
the uncertainties those are present within the oil and coal industry of Australia along with
analyzing the related risks in finance and economy of the nation (Soeder et al., 2014). In
addition, as the current reassert focuses on analyzing the economic as well as financial risks
within the coal and oil markets through quantitative analysis, deductive research approach will
used employed in this study. This is due to the reason that the researcher has employed primary

10ECONOMICS AND FINANCE RISK IN COAL AND OIL MARKETS
data collection method and deductive research approach is highly suitable in gathering relevant
research results on this subject.
6.2. Data Collection and Analysis
Collection of the qualitative as well as quantitative data that will be gathered in this
research will be relied on a particular time as the oil prices has began to decline in the year 2014
(Taylor, Bogdan & DeVault, 2015). At such period, the oil industry was observed to be selling
off at the auctions based on the prices of the bargain basement. The data collection of the
research that will be focused on this study on the increasing debts of the coal and oil industries
from the $1.1 trillion to $3 trillion from the year 2006 and the year 2014 (Mackey & Gass,
2015). Certain other sources of data collection that will be implied on the trend of the increasing
unemployment from the boom of coal mining in the year 1970s. Several other research articles
will be studied that is published by the “US Bureau of Labor Statistics”. The analysis is deemed
to be relied in such report that will signify the increase in the demand of the coal and oil because
of the resource depletion, technological changes as well as automation. In addition, the
secondary data that will be gathered is deemed to be from the authentic ad reliable journals, e-
books as well as previous research papers (Monasterolo et al., 2016). The data analysis will be
carried out relied on the indication of the vital reasons for the risks and the uncertainties with the
implementation of the measures of dispersion along with the descriptive statistics. The analysis
of the qualitative data will be carried out through following the observation method.
6.3. Research Structure
The first chapter in the research of likely economic and finance risks present in coal and
oil markets of Australia is focused on introducing this research topic. The second chapter of this
research proposal will explain the research problem based on which certain solutions are to be

11ECONOMICS AND FINANCE RISK IN COAL AND OIL MARKETS
gathered after research completion. The third chapter of the research is to explain the aim and
objectives set in this particular research. The fourth chapter of this research proposal will provide
justifications for the possible research outcomes in this study. The fifth chapter will explain the
relevant literature that is present on the research subject based on which suitable research
hypotheses will be developed that will be further tested in the research. The sixth chapter will
explain the research methodology that will be employed in this study for explaining the suitable
approach, data collection process and budget set for the research.
6.4. Budget, Gantt Chart and Research Activities
Budget for Research
Item Amount
A. Personnel $200.00
1. Researcher $300.00
2. Managers $400.00
3. Employees $250.00
4. Data analyst $180.00
5. Statistician $220.00
Category
Total:
$1,350.00
B. Equipment
1. Questionnai
re
$230.00
2. Statistical $260.00

12ECONOMICS AND FINANCE RISK IN COAL AND OIL MARKETS
tool
3. Research
utensils
$190.00
4. Printer $300.00
Category
Total:
$980.00
C. Supplies/Expenses $190.00
1. Research
utensils
$300.00
2. Category
Total:
$490.00
D. Travel
1. Petrol $190.00
2. Cars $300.00
3. Category
Total:
$490.00
TOTAL $3,310.00
Task Week
1
Week
2
Week
3
Week
4
Week
5
Week
6
Week
7
Week
8
Week
9
Selection of topic
and search for

13ECONOMICS AND FINANCE RISK IN COAL AND OIL MARKETS
justification
Constructing
literature
Selecting
appropriate
methods
Data collection
Data analysis and
representation
Reviewing the
outcomes
Conclusions and
recommendations
Submitting draft
of the project
Printing and final
submission

14ECONOMICS AND FINANCE RISK IN COAL AND OIL MARKETS
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