Hedging pressure and inventories as determinants of commodity future returns

Commodity futures have been expanding rapidly during the last years and represent a very important investment instrument. Investors use commodity futures for hedging and speculative purposes. A lot of theories have been developed to assess the determinants of futures returns. By detecting the factors that cause a backwarded or a contango market we can explain why futures deviate from their fair value. The latter reflects the expected spot price. In the current analysis we are going to develop the normal backwardation theory, the theory of storage and the hedging pressure theory which refer to the relation between spot and futures prices.