The supply of storage in energy futures markets

The theory of storage is tested for crude oil, heating oil, and gasoline futures markets using the time basis of 2 nearby futures prices. Traditional, direct tests and Fama-French indirect tests are conducted. The results confirm the existence of the supply of storage curve in both gasoline and heat...

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Bibliographic Details
Published in:The journal of futures markets 1990-12, Vol.10 (6), p.611-621
Main Authors: Cho, Dong W., McDougall, Gerald S.
Format: Article
Language:English
Subjects:
Crude oil
Energy resources
Futures market
Oil
Statistical analysis
Stocks
Storage
Studies
Supply
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Summary:The theory of storage is tested for crude oil, heating oil, and gasoline futures markets using the time basis of 2 nearby futures prices. Traditional, direct tests and Fama-French indirect tests are conducted. The results confirm the existence of the supply of storage curve in both gasoline and heating oil markets. In addition, the gasoline time basis is highly sensitive to changes in inventory level. A one-million-barrel increase in gasoline stock increases the interest adjusted time basis by 16.5 basis points. The evidence of the supply of storage curve in the crude oil market is weaker, whether derived from direct tests or indirect tests. The crude oil market passes the traditional test at a lower level of confidence. The crude oil market fails to pass the more stringent Fama-French test. A more pronounced supply curve of storage may be attributed to seasonal factors in the demand for gasoline and heating oil. Despite a relative weakness in the crude oil market, the evidence for the theory of storage is robust for energy markets taken as a whole.
ISSN:0270-7314
1096-9934
DOI:10.1002/fut.3990100605