if the users are dominating and the market is also in backwardation then the producer should be more prone to price volatilty hence, insurance theory should apply…
isn’t it correct?
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Jay, the only differentiator b/w Insurance & Storage theory is storage cost.
In case of Insurance, we don’t presume storage cost to be 0, still F < S because of a higher convenience yield.
In case of Storage, storage cost can be 0 as in this case & therefore, option B is correct.
I do acknowledge that the differentiator is hard to explain but this is how it’s.
Rest you can research at your end for a better understanding than this. Thank you!