So it seems that futures prices, in general, not better forecaster of future oil prices than the spot price. Enthusiasts make projections of oil prices through futures surprised if futures prices add information about future oil prices that spot oil prices do not. Also mentioned are forecasts that the use of both futures prices and spot prices better than forecasts, which use only spot prices? Even so, the price of futures adds little.

The theory of storage and arbitration

Failure to "equal futures expected in the future spot" theory of futures prices is not a new phenomenon. Many well-known economists in 193Os and 1940, such as John Maynard Keynes, Sir John Hicks, and the working Holbrook, said her problems, at least for "full compliance" market, that is, extensive markets, where there have been storage. These economists were the first to realize that closer look at the costs and benefits of storage can give a better explanation of futures prices.

In a sense, lack of "waiting" approach to futures prices is that it ignores the uncertainty. You can think prices were going to grow, but if you're not sure, playing a hunch your left you will discover a lot of risk. The high price of futures while less confident that business and more like a bet, and this affects the price, because there are risks associated with reward. Thinking about the problem in terms of storage, however, shows how profitable analyzing opportunities can tie down futures prices.


Consider again that the six-month oil futures contracts. By adopting it, you agree to deliver oil in six months, and within six months you get an agreed price. If you are Shell Oil, or the Saudi royal family, you have oil for delivery, but if you do not, you can buy it-on cost. How much does it cost for the delivery of oil in six months? One strategy is to borrow money today to buy oil on the spot market, keep it within six months, and then deliver it to obtain payment, and repay your loan. This inevitably puts on futures prices: if futures prices are too high, it makes sense for market participants to buy oil and store it, driving prices spot and futures prices down. Of course, the opposite strategy works, if futures prices are too low, is now selling oil and buying it on the futures market. (Since this may involve a short sale, there is little more complicated, but it works-cm. Recommended readings on carefully worked examples.)

That means three things tie-down futures prices: spot price, interest rate (borrowed money), and storage costs. Or, to turn things around, futures prices tells us about today's spot prices, interest rates and storage costs. The cost of storage in general is quite obvious, because many agricultural products to spoil, even goods that do not, such as oil or gold, the cost of a store. On average, it shows that the futures prices should be higher than spot prices, since interest charges and storage costs.

What then backwardation, so that the total oil market, where futures prices are lower than the spot price? It is important to understand that for some products have advantages storage, and storage costs. If these benefits are large enough to balance storage costs and interest rates, could lead backwardation. This storage benefit called "convenience yield".