Agreement Matters: OPEC Announcement Effects on WTI Term Structure

Abstract

We investigate the relationships between different types of OPEC announcements and term structure variables (level, slope and curvature) for WTI crude oil futures. We find that agreements to increase (decrease) production are positively (negatively) associated with changes in oil price levels in futures markets. This finding is consistent with recent research. For the first time in the literature, we evaluate announcements which signify 'no change' in production quotas. In particular, a 'no change' announcement may be due to a unanimous agreement to maintain quotas unchanged, or it may be due to a failure to agree on a change in quotas. We find the term structure effects (on slope and curvature) of the two types of announcement to be statistically significantly different from each other. Our results suggest that markets are more optimistic following agreements to maintain production, and more cautious following a failure to agree.

Keywords: OPEC, Agreement, Quota, Term Structure, Nelson-Siegel Model, Event Study, CAR, CAF, Failure to Agree

JEL Classification: G14, G, Q31, Q39, Q41, Q48