Oil futures prices are often below spot prices. This phenomenon, known as strong backwardation, is inconsistent with Hotelling's theory under certainty that the net price of an exhaustible resource rises over time at the rate of interest. We introduce uncertainty and characterize oil wells as...

Oil futures markets frequently exhibit backwardation whereby more distant oil futures prices are below the current spot price. This is inconsistent with Hotelling’s theory that the net price of an exhaustible resource rises over time at the interest rate. We characterize an oil well as a call...

Oil futures prices are often below spot prices. This phenomenon, known as strong backwardation, is inconsistent with Hotelling's theory under certainty that the net price of an exhaustible resource rises over time at the rate of interest. The authors introduce uncertainty and characterize oil...