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Stochastic seasonality in commodity prices: the case of US natural gas

Author

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  • Sheng-Hung Chen

    (National Kaohsiung University of Science and Technology)

  • Song-Zan Chiou-Wei

    (National Kaohsiung University of Science and Technology)

  • Zhen Zhu

    (University of Central Oklahoma
    C.H. Guernsey and Company)

Abstract

Many commodity prices exhibit seasonal patterns. Futures prices are based on assumptions about spot prices in many commodity futures pricing models, and existing theories of commodity forward and futures prices assume deterministic seasonality. Therefore, examining the seasonal behavior of spot price is an important first step in ascertaining the characteristics of futures or forward prices. Using the US natural gas price as an example, we find that seasonality in the gas spot price appears to be non-deterministic and non-stationary. In this paper, we also explain the sources of stochastic seasonality in the spot price. After we examine the stochastic nature of the seasonality in the fundamental variables including production, consumption, natural gas underground storage, and weather, we investigate the seasonal cointegration of the spot gas price and these fundamental variables. We find evidence supporting the hypothesis that the stochastic seasonality in the spot price is determined by the stochastic seasonality in the fundamental variables.

Suggested Citation

  • Sheng-Hung Chen & Song-Zan Chiou-Wei & Zhen Zhu, 2022. "Stochastic seasonality in commodity prices: the case of US natural gas," Empirical Economics, Springer, vol. 62(5), pages 2263-2284, May.
    • Handle: RePEc:spr:empeco:v:62:y:2022:i:5:d:10.1007_s00181-021-02094-4
    DOI: 10.1007/s00181-021-02094-4
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    Cited by:

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    3. Paolo Libenzio Brignoli & Alessandro Varacca & Cornelis Gardebroek & Paolo Sckokai, 2024. "Machine learning to predict grains futures prices," Agricultural Economics, International Association of Agricultural Economists, vol. 55(3), pages 479-497, May.

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