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Why do Firms Hold Oil Stockpiles?

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  • Mason, Charles F.

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.

Suggested Citation

  • Mason, Charles F., 2011. "Why do Firms Hold Oil Stockpiles?," Energy: Resources and Markets 120051, Fondazione Eni Enrico Mattei (FEEM).
    • Handle: RePEc:ags:feemer:120051
    DOI: 10.22004/ag.econ.120051
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    More about this item

    Keywords

    Resource /Energy Economics and Policy;

    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

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