Futures-based commodity ETFs when storage is constrained

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.

The views expressed in this publication are those of the authors and do not necessarily reflect the views of the BIS or its member central banks.