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Business cycle, storage, and energy prices

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  • Oleg Kucher
  • Alexander Kurov

Abstract

This study examines the effect of the state of the economy and inventory on interest‐adjusted bases and expected returns for five energy commodities. We find that interest‐adjusted bases and returns have a business cycle pattern. Consistent with the theory of storage, demand shocks near business cycle peaks generate negative interest‐adjusted bases and positive returns. In recessions, the bases become positive, and the average returns are negative. Our regression results also show that the interest‐adjusted bases of energy commodities are counter‐cyclical and the expected returns are pro‐cyclical. For petroleum commodities, inventory has a significant effect on interest‐adjusted bases at low levels of inventory, whereas at high inventory levels the effect of inventory on the bases is weak. Finally, we find that the bases and economic conditions predict spot returns in energy commodity markets.

Suggested Citation

  • Oleg Kucher & Alexander Kurov, 2014. "Business cycle, storage, and energy prices," Review of Financial Economics, John Wiley & Sons, vol. 23(4), pages 217-226, November.
    • Handle: RePEc:wly:revfec:v:23:y:2014:i:4:p:217-226
    DOI: 10.1016/j.rfe.2014.09.001
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    3. Ahmed, Rashad, 2020. "Global Flight-to-Safety Shocks," MPRA Paper 103501, University Library of Munich, Germany.
    4. Soohyeon Kim & Jungho Baek & Eunnyeong Heo, 2020. "Crude oil inventories: The two faces of Janus?," Empirical Economics, Springer, vol. 59(2), pages 1003-1018, August.
    5. Sercan Demiralay & Selcuk Bayraci & H. Gaye Gencer, 2019. "Time-varying diversification benefits of commodity futures," Empirical Economics, Springer, vol. 56(6), pages 1823-1853, June.
    6. Considine, Jennifer & Galkin, Philipp & Aldayel, Abdullah, 2022. "Inventories and the term structure of oil prices: A complex relationship," Resources Policy, Elsevier, vol. 77(C).

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