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Balancing World Oil Markets and Understanding Contango and Inventories: The Changing Nature of World Oil Markets

Author

Listed:
  • Jennifer Considine
  • Abdullah Aldayel

    (King Abdullah Petroleum Studies and Research Center)

Abstract

The general theory of storage suggests that the level of inventories is a key factor in determining the structure of the oil futures curve, or the basis, over time. The basis is the difference between the price of oil in the futures market and the price of oil in the spot market. As an indicator of future price movements, the basis follows a different dynamic when inventories are in scarce supply or in surplus. This means that there are several different market states that reflect different underlying crude oil market conditions.

Suggested Citation

  • Jennifer Considine & Abdullah Aldayel, 2020. "Balancing World Oil Markets and Understanding Contango and Inventories: The Changing Nature of World Oil Markets," Discussion Papers ks--2020-dp15, King Abdullah Petroleum Studies and Research Center.
    • Handle: RePEc:prc:dpaper:ks--2020-dp15
    DOI: 10.30573/KS--2020-DP15
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    File URL: https://www.kapsarc.org/research/publications/balancing-world-oil-markets-and-understanding-contango-and-inventories-the-changing-nature-of-world-oil-markets/
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    File URL: https://libkey.io/10.30573/KS--2020-DP15?utm_source=ideas
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    Cited by:

    1. Considine, Jennifer & Hatipoglu, Emre & Aldayel, Abdullah, 2022. "The sensitivity of oil price shocks to preexisting market conditions: A GVAR analysis," Journal of Commodity Markets, Elsevier, vol. 27(C).

    More about this item

    Keywords

    Markov Switching regime model; Oil markets; Oil price;
    All these keywords.

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