# Storage and Inventories > Inventories are the buffer between commodity supply and demand. Learn the theory of storage, how stocks affect prices and curves, and the key inventory reports. Source: https://learn.tradelabsai.com/commodities/storage-and-inventories/ Track: Commodities · Level: Intermediate · Updated: 2026-10-03 Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice. Cite as: TradeLabs Learn, "Storage and Inventories", https://learn.tradelabsai.com/commodities/storage-and-inventories/ Inventories, the stocks of a commodity held in tanks, warehouses, silos and vaults, are the buffer between supply and demand. When inventories are high, short term disruptions are easily absorbed and prices tend to be calm, with futures curves in contango. When inventories are low, any disruption can cause sharp price spikes and curves move into backwardation. Watching inventory data is one of the most important habits of commodity traders. ## The theory of storage Economists Nicholas Kaldor, Holbrook Working and Michael Brennan developed the theory of storage, which links inventory levels to the shape of the futures curve. | Inventory level | Convenience yield | Curve shape | Price behaviour | |---|---|---|---| | High | Low | Contango, often near full carry | Calm, low volatility | | Normal | Moderate | Mild contango or flat | Normal | | Low | High | Backwardation | Volatile, prone to spikes | The convenience yield is the benefit of holding the physical commodity, such as keeping a refinery running in a shortage. When stocks are scarce, that benefit rises, and spot prices rise relative to futures. See [Contango](https://learn.tradelabsai.com/futures/contango/), [Backwardation](https://learn.tradelabsai.com/futures/backwardation/) and [Spot vs Futures](https://learn.tradelabsai.com/futures/spot-vs-futures/). ## Days of supply Analysts often express inventories relative to consumption: ``` days of supply = inventories / daily consumption ``` or in grains, the stocks to use ratio: ``` stocks to use = ending stocks / annual use ``` **Example: Stocks to use and corn prices** In one season, USDA estimates US corn ending stocks of 2.0 billion bushels against total use of 14.5 billion, a stocks to use ratio of about 13.8%. In another season, a drought cuts ending stocks to 0.8 billion bushels against use of 12.0 billion, a ratio of about 6.7%. Historically, lower stocks to use ratios have been associated with much higher corn prices, because buyers must bid up prices to ration scarce supply. See [Corn](https://learn.tradelabsai.com/commodities/corn/). ## Key inventory reports | Report | Market | Frequency | |---|---|---| | EIA Weekly Petroleum Status Report | US crude, gasoline, distillates | Weekly (usually Wednesday) | | API weekly statistics | US crude and products | Weekly (usually Tuesday) | | EIA Weekly Natural Gas Storage Report | US natural gas | Weekly (Thursday) | | USDA WASDE | Global grains, oilseeds, cotton, sugar, livestock | Monthly | | USDA Grain Stocks | US grain inventories | Quarterly | | LME warehouse stocks | Base metals | Daily | | COMEX warehouse stocks | Gold, silver, copper | Daily | Markets react to the difference between reported changes and analysts' expectations. See [Trading Economic Releases](https://learn.tradelabsai.com/macro/trading-economic-releases/). ## When storage runs out Storage capacity is finite. When it fills up, holders of physical commodities cannot find anywhere to put new supply, and near term prices can collapse. In April 2020, demand for oil collapsed during COVID lockdowns. Storage at Cushing, Oklahoma, the delivery point for WTI futures, neared capacity. On 20 April, the expiring May WTI contract settled at minus $37.63 a barrel: holders paid buyers to take oil off their hands. Traders even chartered oil tankers as floating storage. See [Crude Oil](https://learn.tradelabsai.com/commodities/crude-oil/) and [Physical Delivery vs Cash Settlement](https://learn.tradelabsai.com/futures/physical-delivery/). ## Visible and invisible inventories Not all inventories are reported. Stocks held by consumers, in transit at sea or in countries with limited data are "invisible". China's commodity stockpiles, for example, are hard to measure, which adds uncertainty to global balances. ## Trading with inventories - **Fundamental trading:** buy when inventories are tightening faster than expected, sell when they build. - **Spread trading:** low inventories favour bull calendar spreads (near month strength). See [Calendar Spreads in Futures](https://learn.tradelabsai.com/futures/calendar-spreads-in-futures/). - **Event trading:** trade the weekly or monthly report surprises. See [News Trading](https://learn.tradelabsai.com/strategies/news-trading/). - **Cash and carry:** when contango exceeds storage costs, store and sell futures. See [Cash-and-Carry Arbitrage](https://learn.tradelabsai.com/futures/cash-and-carry-arbitrage/). ## Frequently asked questions ### Why do inventories matter for commodity prices? They are the buffer between supply and demand. Low inventories make prices more sensitive to disruptions and push curves into backwardation. ### What is the stocks to use ratio? Ending inventories divided by annual consumption, a key measure of tightness in grain markets. ### Why did oil prices go negative in 2020? Demand collapsed and storage at the WTI delivery point was nearly full, so holders of expiring futures paid others to take delivery. Next, explore the largest commodity sector in [Energy Markets](https://learn.tradelabsai.com/commodities/energy-markets/). ## Continue learning - Next lesson: [Energy Markets](https://learn.tradelabsai.com/commodities/energy-markets/) - Previous lesson: [Seasonality in Commodities](https://learn.tradelabsai.com/commodities/seasonality-in-commodities/) - Related: [Seasonality in Commodities](https://learn.tradelabsai.com/commodities/seasonality-in-commodities/): Many commodities follow seasonal patterns tied to weather, harvests and demand. Learn key patterns in grains, energy and softs, how to measure them and their limits. - Related: [Contango](https://learn.tradelabsai.com/futures/contango/): Contango is when later futures trade above nearer ones or spot. Learn why it happens, how it erodes long commodity and VIX funds, and how traders use it. - Related: [Backwardation](https://learn.tradelabsai.com/futures/backwardation/): Backwardation is when later futures trade below nearer ones or spot. Learn the causes, convenience yield, positive roll yield and what it signals about supply. - Related: [Crude Oil](https://learn.tradelabsai.com/commodities/crude-oil/): Crude oil is the world's most traded commodity. Learn WTI vs Brent, the futures contracts, OPEC+, shale, inventory reports and how traders approach oil. - Related: [Natural Gas](https://learn.tradelabsai.com/commodities/natural-gas/): Natural gas prices are driven by weather, storage, production and LNG exports. Learn Henry Hub futures, the storage report, seasonality and why gas is so volatile. - Related: [Commodity Market Fundamentals](https://learn.tradelabsai.com/commodities/commodity-market-fundamentals/): Commodity prices are driven by physical supply and demand, inventories, the dollar and weather. Learn the main sectors, key drivers, participants and data.