[R-SIG-Finance] A question on Forward Price

[Christofer Bogaso]

Ofcourse Electricity can not be stored or storage cost would be
extraordinarily high. Therefore it would have zero CY. I feel Power
prices should always be in contango

On Mon, Jun 30, 2014 at 2:45 AM, Michael Weylandt
<michael.weylandt at gmail.com> wrote:
>
>
>> On Jun 29, 2014, at 4:07 PM, Christofer Bogaso <bogaso.christofer at gmail.com> wrote:
>>
>> Hi again,
>>
>> I would like ask a small question however not really related to R.
>>
>> We all know that non-arbitrage Forward price of any underlying (except
>> perhaps Interest Rate) is just the spot price plus the cost of carry.
>> Cost of carry again depends on cost of borrowing and convenience
>> yield.
>
> Do we know that?
>
> Consider energy (electricity) futures....
>
>>
>> Therefore my question is, is it true that for most consumable
>> commodity like agricultural commodity, crude oil, the Forward market
>> will mostly remain in backwardination? Specially for Crude oil it
>> looks always remains in Backwardination. Because since they are
>> consumable then buying now and storing would be more economical than
>> buying it Forward for future use, hence CY would be higher.
>>
>> Another related question is, for Crude oil if Forward market becomes
>> more in Backwardination then does it imply that, in Future it's price
>> is expected to increase, keeping everything else same?
>>
>> I really appreciate your thought on the same.
>>
>> Thanks and regards,
>>
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