Financialization and Learning About the Persistence of Shocks

Sergei Seleznev and Veronika Selezneva

The Energy Journal, 2025, vol. 46, issue 4, 1-30

Abstract: Oil market participants depend on inventories data to learn about the current and future oil market conditions, and thus infer the persistence of realized shocks. We argue that financialization has made such learning more challenging. When financial investors trade oil for reasons unrelated to oil fundamentals, they introduce non-fundamental noise to the futures market, creating a wedge between futures and spot prices. Exploiting this wedge, arbitrageurs simultaneously trade futures contracts and store physical oil, thus propagating non-fundamental noise to inventories and making them a nosier indicator of oil market fundamentals. We develop a tractable dynamic model that features permanent and temporary fundamental shocks, storage, and a complex oil financial market. Using the model, we show that financialization makes temporary shocks more likely to be perceived as persistent. We also establish a connection between the maturity of futures contracts targeted by naive investors and the informativeness of futures prices and inventories. We believe that our mechanism played a key role in amplifying oversupply fears in 2015. JEL Classification: D82, G14, Q02.

Keywords: asset pricing; commodities; financialization; learning; persistence; oil; inventories; term structure; futures market (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://journals.sagepub.com/doi/10.1177/01956574241280799 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:enejou:v:46:y:2025:i:4:p:1-30

DOI: 10.1177/01956574241280799

Access Statistics for this article

More articles in The Energy Journal
Bibliographic data for series maintained by SAGE Publications ().