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Reasons Behind Words: OPEC Narratives and the Oil Market

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Abstract

We analyze the content of the Organization of the Petroleum Exporting Countries (OPEC) communications and whether it provides 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 whether market participants find it credible. Using Structural Topic Models, we analyze OPEC narratives and identify several topics related to fundamental factors, such as demand, supply, and speculative activity in the crude oil market. Importantly, we find that OPEC communication reduces oil price volatility and prompts market participants to rebalance their positions. Our analysis indicates that market participants assess OPEC communications as providing an important signal to the crude oil market.

Suggested Citation

  • Celso Brunetti & Marc Joëts & Valérie Mignon, 2024. "Reasons Behind Words: OPEC Narratives and the Oil Market," Finance and Economics Discussion Series 2024-003, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2024-03
    DOI: 10.17016/FEDS.2024.003
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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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