should then be higher than the current spot price, . From the above formula, this only tells us that . The interesting line of reasoning comes when inventories are low. When inventories are low, we expect that scarcity now is greater than in the future. Unlike the previous case, the investor can not buy inventory to make up for demand today. In a sense, the investor wants to borrow inventory from the future but is unable. Therefore, we expect future prices to be lower than today and hence that . This implies that . Consequently, the convenience yield is inversely related to inventory levels. References Financial markets