Futures Markets and Petroleum Supply. A Study of Heating Oil Futures

摘要

The study evaluates the month-to-month performance of the wholesale heating oil market in the East Coast region over the past three winters as influenced by the price of heating oil futures traded on the New York Mercantile Exchange (NYMEX) for New York Harbor delivery. The economic basis for the analysis is derived from a conceptual model of petroleum refiner and marketer behavior. In this model, futures trading and cash market plans are described as being jointly formulated to maximize profits and minimize risk. A comparison of price and inventory levels indicated by the model for a ''no futures'' and a ''futures'' case provides an indication of how the introduction of futures trading may have influenced petroleum markets. The study demonstrates that the ''no futures'' model provides a better explanation of actual cash market prices than does the ''futures'' model, but that the ''futures'' model provides a better explanation of inventory levels. Estimates of inventory change support a finding that petroleum suppliers are using futures to manage risk in a manner consistent with the ''futures'' model described in this paper. The fact that the ''no futures'' model provides a marginally better explanation of cash prices, however, suggests that risk attitudes still influence the petroleum supply and demand decisions of many market participants. The ''no futures'' model always performs best when the futures price is used to represent price expectations, underscoring the importance of the futures market as an information source, even to those businesses that do not trade in futures. At the same time, the magnitudes of the differences between the ''futures'' and the ''no futures'' estimates of cash prices and primary inventory change are very small, suggesting the overall influence of futures trading on petroleum supply has not been great. This conclusion is consistent with industry reports that refiners are only peripherally in the refined product futures markets. (ERA citation 11:025341)