Journal of Energy Markets

Does the impact of exchange-traded funds flows on commodities prices involve stockpiling as a signature? An empirical investigation

Steve Ohana and Xiaoying Huang

The goal of this paper is twofold:

  • To confirm the impact of index investing flows on commodity futures prices at the contemporaneous level.
  • To provide evidence that this impact is direct and does not involve stockpiling as a signature.

Together, our results carry several implications:

  • They reveal the short-term price inelasticity of supply and demand in commodity markets.
  • They suggest a certain inefficiency of commodity futures markets in the short-term.

A number of prominent authors have recently argued that any abnormal impact of speculators on commodities prices should involve stockpiling as a signature. Others contend, by contrast, that due to the price inelasticity of supply and demand in commodity markets, speculation could distort commodity prices without any change in inventories. Motivated by this debate, this paper examines the relation between the investment flows into the three main commodity index exchange-traded funds (ETFs) and the prices, inventory and term structure of four US-traded energy commodities. Using weekly inventory data from the Energy Information Agency and futures prices from NYMEX energy contracts, we do not find any significant relation between commodity index flows and inventory or term structure. By contrast, we retrieve the short-term impacts of index flows on energy commodities’ futures prices that have already been evidenced in the literature. An extension of our framework of analysis to twelve US-traded agricultural contracts confirms these conclusions. Hence, our results suggest that stockpiling is not necessarily a “signature” of an abnormal impact of speculators on commodities prices.

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