The dynamics of commodity spot and futures markets
Name
2001-002.pdf
Size
244.32 KB
Format
Adobe PDF
Checksum (MD5)
d54dfb4cfe4500726f1ca67f59009bb3
Author(s)
Pindyck, Robert S.
Date Issued
2001
Publisher
MIT Center for Energy and Environmental Policy Research
Series/Report no.
MIT-CEEPR (Series) ; 01-002WP.
Abstract
I discuss the short-run dynamics of commodity prices, production, and inventories, as well as the sources and effects of market volatility. I explain how prices, rates of production, and inventory levels are interrelated, and are determined via equilibrium in two interconnected markets: a cash market for spot purchases and sales of the commodity, and a market for storage. I show how equilibrium in these markets affects and is affected by changes in the level of price volatility. I also explain the role and behavior of commodity futures markets, and the relationship between spot pries, futures prices, and inventory behavior. I illustrate these ideas with data for the petroleum complex--crude oil, heating oil, and gasoline--over the past two decades.
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