The dynamics of commodity spot and futures markets: A primer

Authors
Citation
Rs. Pindyck, The dynamics of commodity spot and futures markets: A primer, ENERGY J, 22(3), 2001, pp. 1-29
Citations number
27
Categorie Soggetti
Economics,"Environmental Engineering & Energy
Journal title
ENERGY JOURNAL
ISSN journal
01956574 → ACNP
Volume
22
Issue
3
Year of publication
2001
Pages
1 - 29
Database
ISI
SICI code
0195-6574(2001)22:3<1:TDOCSA>2.0.ZU;2-9
Abstract
I discuss the short-run dynamics of commodity prices, production, and inven tories, 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 marke r 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 c ommodity futures markers, and the relationship between spot prices, futures prices, and inventory behavior, I illustrate these ideas with data for the petroleum complex - crude oil, hearing oil, and gasoline - over the past t wo decades.