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Reasons Behind Words: OPEC Narratives and the Oil Market

Author

Listed:
  • Celso Brunetti
  • Marc Joëts

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Valérie Mignon

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

We analyze the content of the Organization of the Petroleum Exporting Countries (OPEC) communications and whether it provides valuable 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 its credibility. Using Structural Topic Models, we identify several topics in OPEC narratives. We show that these topics are related to fundamental factors such as demand, supply, and speculative activity in the crude oil market, highlighting that OPEC narratives are highly linked to oil market volatility and traders' positions. We also find that OPEC communication is credible, reduces oil price volatility, and prompts market participants to rebalance their positions.

Suggested Citation

  • Celso Brunetti & Marc Joëts & Valérie Mignon, 2023. "Reasons Behind Words: OPEC Narratives and the Oil Market," Working Papers hal-04196053, HAL.
    • Handle: RePEc:hal:wpaper:hal-04196053
    Note: View the original document on HAL open archive server: https://hal.science/hal-04196053
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    More about this item

    Keywords

    OPEC Announcements; Structural Topic Models; Volatility; Traders’ Positions;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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