Do OPEC Members Know Something the Market Doesn’t? ‘Fair Price’ Pronouncements and the Market Price of Crude Oil

35 Pages Posted: 6 Aug 2010 Last revised: 15 Mar 2015

Bahattin Buyuksahin

Bank of Canada

Celso Brunetti

Board of Governors of the Federal Reserve System

Michel A. Robe

American University - Kogod School of Business

Kirsten R. Soneson

Commodity Futures Trading Commission (CFTC)

Date Written: August 3, 2010

Abstract

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.

Keywords: Crude oil, OPEC, Fair price, Announcement, Market price, Event study, Kalman filter, Autoregressive Distributed Lag (ADL)

JEL Classification: E31, Q4, G14

Suggested Citation

Buyuksahin, Bahattin and Brunetti, Celso and Robe, Michel A. and Soneson, Kirsten R., Do OPEC Members Know Something the Market Doesn’t? ‘Fair Price’ Pronouncements and the Market Price of Crude Oil (August 3, 2010). Available at SSRN: https://ssrn.com/abstract=1652834 or http://dx.doi.org/10.2139/ssrn.1652834

Bahattin Buyuksahin

Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

Celso Brunetti

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Michel A. Robe (Contact Author)

American University - Kogod School of Business ( email )

4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States
202-885-1880 (Phone)
202-885-1946 (Fax)

Kirsten R. Soneson

Commodity Futures Trading Commission (CFTC) ( email )

1155 21st Street NW
Washington, DC 20581
United States
202-418-5304 (Phone)

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