Do OPEC Members Know Something the Market Doesn’t? ‘Fair Price’ Pronouncements and the Market Price of Crude Oil
Bank of Canada
Federal Reserve Board
Michel A. Robe
American University - Kogod School of Business
Kirsten R. Soneson
Commodity Futures Trading Commission (CFTC)
August 3, 2010
OPEC producers, individually or collectively, often make statements regarding the “fair price” of crude oil. In some cases, the officials commenting are merely affirming the price prevailing in the crude oil market at the time. In many cases, however, we document that they explicitly disagree with the contemporaneous futures price. A natural question is whether these “fair price” pronouncements contain information not already reflected in market prices. To find the answer, we collect the “fair price” statements made from 2000 to 2009 by officials from OPEC or OPEC member countries. Visually, the “fair price” series looks like a sampling discretely drawn (with a lag) from the daily futures market price series. Formally, we use several methodologies to establish that “fair price” pronouncements have little influence on the market price of crude oil and that they supply little or no new news to oil futures market participants.
Number of Pages in PDF File: 35
Keywords: Crude oil, OPEC, Fair price, Announcement, Market price, Event study, Kalman filter, Autoregressive Distributed Lag (ADL)
JEL Classification: E31, Q4, G14working papers series
Date posted: August 6, 2010 ; Last revised: August 31, 2010
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