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Agreement matters: OPEC announcement effects on WTI term structure

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  • Spencer, Simon
  • Bredin, Don

Abstract

We investigate the relationships between different types of OPEC announcements and term structure variables (level, slope and curvature) for WTI crude oil futures. We find that agreements to increase (decrease) production are positively (negatively) associated with changes in oil price levels in futures markets. This finding is consistent with recent research. For the first time in the literature, we evaluate announcements which signify ‘no change’ in production quotas. In particular, a ‘no change’ announcement may be due to a unanimous agreement to maintain quotas unchanged, or it may be due to a failure to agree on a change in quotas. We find the term structure effects (on slope and curvature) of the two types of announcement to be statistically significantly different from each other. Our results suggest that markets are more optimistic following agreements to maintain production, and more cautious following a failure to agree.

Suggested Citation

  • Spencer, Simon & Bredin, Don, 2019. "Agreement matters: OPEC announcement effects on WTI term structure," Energy Economics, Elsevier, vol. 80(C), pages 589-609.
    • Handle: RePEc:eee:eneeco:v:80:y:2019:i:c:p:589-609
    DOI: 10.1016/j.eneco.2019.01.018
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    1. Lajos Horváth & Zhenya Liu & Curtis Miller & Weiqing Tang, 2024. "Breaks in term structures: Evidence from the oil futures markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(2), pages 2317-2341, April.
    2. Shen, Yiran & Sun, Xiaolei & Ji, Qiang & Zhang, Dayong, 2023. "Climate events matter in the global natural gas market," Energy Economics, Elsevier, vol. 125(C).
    3. Czudaj, Robert L., 2022. "Heterogeneity of beliefs and information rigidity in the crude oil market: Evidence from survey data," European Economic Review, Elsevier, vol. 143(C).

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q39 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Other
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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