Finance and Economics Discussion Series (FEDS)
February 2024
Reasons Behind Words: OPEC Narratives and the Oil Market
Celso Brunetti, Marc Joëts, Valérie Mignon
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.
Keywords: OPEC Announcements, Structural Topic Models, Volatility, Traders' Positions
DOI: https://doi.org/10.17016/FEDS.2024.003
PDF: Full Paper
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