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The Oil Market Reactions to OPEC’s Announcements

Author

Listed:
  • Yue Liu

    () (Hunan Institute of Technology, School of Economics and Management, Hengyang 421001, China)

  • Hao Dong

    () (School of Economics and Statistics, Guangzhou University, Guangzhou 510006, China)

  • Pierre Failler

    () (Economics and Finance Group, Portsmouth Business School, University of Portsmouth, Portsmouth PO1 3DE, UK)

Abstract

Because of the crucial implications of the market power of OPEC, the aim of this paper was to investigate the oil asymmetric market reactions, such as the price and risk reactions, to OPEC’s announcements. Specifically, this paper first explored the oil price reactions to OPEC’s announcements and their heterogeneity to depict the directional role of OPEC based on event study methodology. Furthermore, this paper analyzed the oil risk reactions in the framework of a linear model. Our findings reveal several key results. The oil price reactions to OPEC production decisions behave quite heterogeneously in three kinds of decisions. Specifically, the reaction to announcements of a production increase shows an invert “U” shape, whereas there is a linear effect of cut announcements. Otherwise, when a maintain decision is announced, the oil prices have no obvious change over the sample period. Additionally, the oil risk reactions to OPEC’s announcements are heavily related to the interaction item between OPEC decisions and its production over full sample periods. Furthermore, OPEC’s role in promoting stability in crude oil markets by changing its production shows a heterogeneous condition after global financial crisis.

Suggested Citation

  • Yue Liu & Hao Dong & Pierre Failler, 2019. "The Oil Market Reactions to OPEC’s Announcements," Energies, MDPI, Open Access Journal, vol. 12(17), pages 1-15, August.
  • Handle: RePEc:gam:jeners:v:12:y:2019:i:17:p:3238-:d:259961
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    More about this item

    Keywords

    market reactions; OPEC; oil price reactions; oil risk reactions; production decision;

    JEL classification:

    • Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics
    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q49 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Other

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