Title: The dynamics of storage costs
Authors: Andrei Stancu - Newcastle University Business School (United Kingdom)
Lazaros Symeonidis - University of Essex (United Kingdom) [presenting]
Chardin Wese Simen - University of Liverpool (United Kingdom)
Lei Zhao - ESCP Business School (France)
Abstract: It is documented that the monthly storage cost of oil averages 0.50\% of the spot price and varies over time. We decompose the basis, defined as the ratio of the spread between the futures and spot prices over the spot price, into the storage cost (scc) and the adjusted convenience yield (acyc) channels. The scc dominates the mean of the basis and accounts for nearly half of its variations. We show that the scc predicts future inventory growth and is the main conduit through which the predictive power of the basis for oil spot returns arises.