Why do Firms Hold Oil Stockpiles?
Abstract
Persistent and significant privately-held stockpiles of crude oil have long been an important empirical regularity in the United States. Such stockpiles would not rationally be held in a traditional Hotelling-style model. How then can the existence of these inventories be explained? In the presence of sufficiently stochastic prices, oil extracting firms have an incentive to hold inventories to smooth production over time. An alternative explanation is related to a speculative motive - firms hold stockpiles intending to cash in on periods of particularly high prices. I argue that empirical evidence supports the former but not the latter explanation.Download Info
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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2011.100.Length:
Date of creation: Dec 2011
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Handle: RePEc:fem:femwpa:2011.100
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Keywords: Petroleum Economics; Stochastic Dynamic Optimization;Find related papers by JEL classification:
- Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-02-01 (All new papers)
- NEP-BEC-2012-02-01 (Business Economics)
- NEP-CWA-2012-02-01 (Central & Western Asia)
- NEP-ENE-2012-02-01 (Energy Economics)
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