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Reasons Behind Words: OPEC Narratives and the Oil Market

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  • Valérie Mignon
  • Celso Brunetti
  • Marc Joëts

Abstract

We analyze the content of the Organization of the Petroleum Exporting Countries (OPEC) communications and whether it provides valuable information to the crude oil market. To this end, we derive an empirical strategy which allows us to measure OPEC’s public signal and test its credibility. Using Structural Topic Models, we identify several topics in OPEC narratives. We show that these topics are related to fundamental factors such as demand, supply, and speculative activity in the crude oil market, highlighting that OPEC narratives are highly linked to oil market volatility and traders’ positions. We also find that OPEC communication is credible, reduces oil price volatility, and prompts market participants to rebalance their positions.

Suggested Citation

  • Valérie Mignon & Celso Brunetti & Marc Joëts, 2023. "Reasons Behind Words: OPEC Narratives and the Oil Market," EconomiX Working Papers 2023-24, University of Paris Nanterre, EconomiX.
    • Handle: RePEc:drm:wpaper:2023-24
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    More about this item

    Keywords

    OPEC Announcements; Structural Topic Models; Volatility; Traders’ Positions;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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