Futures-based commodity ETFs when storage is constrained

BIS Bulletin  |  No 41  | 
12 April 2021

Key takeaways

  • Exchange-traded funds (ETFs) that hold futures contracts on commodities are an important link between commodity markets and financial markets.
  • When commodity storage capacity is constrained, investor flows into ETFs holding futures can lower, instead of raise, commodity prices due to potentially high costs of physical storage.
  • April 2020 briefly witnessed negative prices for the nearest-maturity futures contract on WTI oil, possibly due to such a combination of storage constraints and investor flows into ETFs.