Publications: Notes at the Margin

Expanding Cushing Storage Raises Cash Prices for Producers (March 19, 2012)

 

Two general principles relate to most economic markets. The first applies everywhere and holds that prices will fall when supply increases. The second, which concerns physical commodity markets, ties the spread between cash and futures prices to inventory levels. This principle, called the supply-of-storage hypothesis, postulates a nonlinear relationship between price spreads and stocks.

 

The US Energy Information Administration has reported that storage capacity in Cushing, Oklahoma, was forty-six million barrels as of end-September 2010. The capacity jumped to fifty-five million barrels by end-September 2011. This report explores how the additional storage will likely alter market relationships.

 

To request subscription information for Notes at the Margin, please Contact Us or send us an Information Request.