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Title:Why do firms hold oil stockpiles? PDF Logo
Authors:Mason, Charles F.
Issue Date:2011
Series/Report no.:Nota di lavoro, Fondazione Eni Enrico Mattei: Energy: Resources and Markets 100.2011
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.
Subjects:Petroleum Economics
Stochastic Dynamic Optimization
JEL:Q2
D8
L15
Document Type:Working Paper
Appears in Collections:FEEM Working Papers, Fondazione Eni Enrico Mattei

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