THE THEORY OF STORAGE IN THE PETROLEUM PRODUCTS FUTURES MARKET
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Date
2023
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Nazarbayev University Graduate School of Business
Abstract
The energy product markets exhibit significant price and inventory
volatility. Some of these fluctuations are unpredictable, prompting market
participants to employ futures contracts and inventories as tools for risk
mitigation. For instance, there was a notable and unprecedented event in the oil
markets in April 2020 when oil prices briefly turned negative due to substantial
decrease in global oil demand: the West Texas Intermediate (WTI) crude oil
futures for May delivery experienced a historic drop, closing at approximately -
$37.63 per barrel(Reed and Krauss, 2021). Consequently, the spread between
futures and spot prices, known as the basis, serves as a crucial indicator of
setting the efficient hedging strategy, and deciding the time when to sell or buy
in oil futures markets...
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Nazarbayev University Graduate School of Business