The behavior of crude oil spot and futures prices around OPEC and SPR announcements: An event study perspective

• Published in: Energy economics Vol. 32; no. 6; pp. 1467 - 1476
• Main Authors: Demirer, Rıza, Kutan, Ali M.
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.11.2010; Elsevier; Elsevier Science Ltd
• Series: Energy Economics
• Subjects: Abnormal returns; Applied sciences; Asymmetry; Conferences; Crude oil; Crude oil OPEC Strategic petroleum reserves Futures markets Event study Energy policy; Economic data; Economic information; Energy; Energy economics; Energy market; Energy policy; Event study; Exact sciences and technology; Fossil fuels and derived products; Futures; Futures market; Futures markets; General, economic and professional studies; Investment returns; Markets; Methodology. Modelling; Oil; Oil price; OPEC; Production level; Reserves; Strategic petroleum reserve; Strategic petroleum reserves; Strategy; Studies; U.S.A; United States > US; USA; Strategic petroleum reserves; Futures markets; L1; Crude oil; O19; G1; OPEC; Energy policy; Event study; F5
• ISSN: 0140-9883; 1873-6181
• DOI: 10.1016/j.eneco.2010.06.006

This paper examines the informational efficiency of crude oil spot and futures markets with respect to OPEC conference and U.S. Strategic Petroleum Reserve (SPR) announcements. We employ the event study methodology to examine the abnormal returns in crude oil spot and futures markets around OPEC conference and SPR announcement dates between 1983 and 2008. Our findings regarding OPEC announcements indicate an asymmetry in that only OPEC production cut announcements yield a statistically significant impact with the impact diminishing for longer maturities. We also find that the persistence of returns following OPEC production cut announcements creates substantial excess returns to investors who take long positions on the day following the end of OPEC conferences. In the case of SPR announcements, we find that the government's use of this program initiates a short-run market reaction following the announcement date. Furthermore, our tests of cumulative abnormal returns suggest that the market reacts efficiently to SPR announcements providing support for the use of the strategic reserves as a tool to stabilize the oil market. Our findings have significant policy implications for investors and are useful in designing effective energy policy strategies.