Business Cycle, Storage, and Energy Prices

35 Pages Posted: 10 Aug 2014

See all articles by Oleg Kucher

Oleg Kucher

Frostburg State University - Department of Economics

Alexander Kurov

West Virginia University - College of Business & Economics

Date Written: July 2014

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.

Keywords: Energy Prices, Inventory, Business Cycle

JEL Classification: E3, E30, G13, Q43

Suggested Citation

Kucher, Oleg and Kurov, Alexander, Business Cycle, Storage, and Energy Prices (July 2014). Review of Financial Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2477792

Oleg Kucher (Contact Author)

Frostburg State University - Department of Economics ( email )

Guild Center 101 Braddock Road
Frostburg, MD 21532-2303
United States

Alexander Kurov

West Virginia University - College of Business & Economics ( email )

P.O. Box 6025
Morgantown, WV 26506
United States

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