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Does Opec Announcement Policy Matter In The Creation Of Crude Oil Price Volatility?

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  • Angi Roesch
  • Harald Schmidbauer

Abstract

Several times a year, OPEC hosts conferences with its members to review oil fundamentals and decide on production quota adjustments. The organization meets behind closed doors, but the opening meeting is open to the press and usually fuels market speculation on which agreement concerning oil production levels (maintain, increase, or cut) will be arrived at. The decisions taken are formally announced in a press release at the end of the conference. The purpose of our investigation is to assess the impact of OPEC announcement policy on the volatility of daily oil price changes shortly before and after a conference is held.We apply a combination of regression and GARCH models with dummy variables which are modified to fulfill different tasks: differentiate between pre-and post-announcement effects, reflect the relative level of oil prices and the time elapsed since previous conferences, and distinguish between the three kinds of OPEC decisions.We find empirical evidence for pre-announcement effects on volatility. The strength of these effects depend on the kind of decision which will be announced, revealing that decisions are anticipated by the market. Our models also indicate decision-specific patterns of impact.

Suggested Citation

  • Angi Roesch & Harald Schmidbauer, 2012. "Does Opec Announcement Policy Matter In The Creation Of Crude Oil Price Volatility?," EcoMod2012 4521, EcoMod.
    • Handle: RePEc:ekd:002672:4521
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    References listed on IDEAS

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    4. Schmidbauer, Harald & Rösch, Angi, 2012. "OPEC news announcements: Effects on oil price expectation and volatility," Energy Economics, Elsevier, vol. 34(5), pages 1656-1663.
    5. Shackle,G. L. S., 2012. "Expectation in Economics," Cambridge Books, Cambridge University Press, number 9781107629141, August.
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