Which category of risk is associated with petroleum production during a downturn in the energy economy?

The correct answer is systematic risk, which refers to the broader economic risks that affect an entire industry or market rather than just a single company or asset. In the context of petroleum production during a downturn in the energy economy, this type of risk is particularly relevant because fluctuations in energy prices, changes in government policy, and global economic conditions can simultaneously impact multiple companies within the petroleum sector.

Systematic risk is often influenced by factors such as geopolitical events, changes in supply and demand, and macroeconomic trends, which are beyond the control of individual producers. Thus, when the energy economy experiences a downturn, it can lead to reduced demand for petroleum, resulting in lower prices and profit margins across the entire industry. This systematic nature means that all companies in the oil and gas sector are likely to feel the effects, regardless of their operational efficiencies or strategies.

In contrast, the other categories of risk, such as non-systematic risk, entity-level risk, and asset-level risk, are more localized and pertain to specific companies or assets rather than the industry as a whole. Non-systematic risk can be mitigated through diversification, entity-level risk pertains to specific actions or financial health of a company, and asset-level risk relates to particular investments or properties rather than