Suggested Citation:
Jaffe, Amy Myers and Ronald Soligo (2002) The Role of Inventories in Oil Market Stability. The Quarterly Review of Economics and Finance 42 (2), 401 - 415

Generally, in many countries, market forces determine the process of setting up inventories and the determination of their size. Producers, consumers and speculators will arbitrage prices so that it will be profitable for someone to hold inventories to moderate fluctuations in the balance between production and consumption—if indeed it is profitable to do so. Similarly, the extent to which producers maintain excess production capacity is a decision made by individual producers based on the profitability of doing so.