Holding costs for fuel inventories: Final report

Technical Report · Sun Jan 01 00:00:00 EST 1989

OSTI ID:6304062

Read, J; Pearson, N

The optimal inventory of a commodity depends in part on how much it costs to hold it. One component of this cost is financial --- the depreciation and interest on the stored commodity. If the future price of the commodity is uncertain, both the depreciation rate and the opportunity cost of funds are expected values. This means that the cost of holding a risky commodity such as fuel oil cannot be observed directly. This report describes a rigorous methodology for estimating the financial component of inventory holding costs. The methodology utilizes prices in the money and commodity markets, all of which are observable. It can be applied to commodities on which forward contracts are traded. The methodology exploits the insight that the inventory decision can be treated as an investment problem. Thus, instead of computing interest and depreciation, the financial component of inventory holding costs can be expressed as the difference between the current spot price of the commodity and the present value of the future spot price.

• Research Organization: Electric Power Research Inst., Palo Alto, CA (USA); Charles River Associates, Inc., Boston, MA (USA)
• OSTI ID: 6304062
• Report Number(s): EPRI-P-6184
• Country of Publication: United States
• Language: English

Related Subjects

02 PETROLEUM
32 ENERGY CONSERVATION, CONSUMPTION, AND UTILIZATION
99 GENERAL AND MISCELLANEOUS//MATHEMATICS, COMPUTING, AND INFORMATION SCIENCE
29 ENERGY PLANNING
POLICY AND ECONOMY
HEATING OILS
INVENTORIES
PETROLEUM
COST
DATA BASE MANAGEMENT
DEPRECIATION
FUEL MANAGEMENT
INTEREST RATE
MARKET
PROGRESS REPORT
U CODES
YIELDS
COMPUTER CODES
DOCUMENT TYPES
ENERGY SOURCES
FOSSIL FUELS
FUEL OILS
FUELS
LIQUID FUELS
MANAGEMENT
OILS
ORGANIC COMPOUNDS
OTHER ORGANIC COMPOUNDS
PETROLEUM PRODUCTS
020700* - Petroleum- Economics
Industrial
& Business Aspects
320602 - Energy Conservation
Consumption
& Utilization- Municipalities & Community Systems- Public Services- (1980-)
990220 - Computers
Computerized Models
& Computer Programs- (1987-1989)
290200 - Energy Planning & Policy- Economics & Sociology