- مبلغ: ۸۶,۰۰۰ تومان
- مبلغ: ۹۱,۰۰۰ تومان
This paper investigates the effect of OPEC production decisions (increase, cut, maintain) on both WTI and Brent crude oil prices between Q1 1991 and Q1 2015 by employing the event study methodology and by using two indices as benchmarks (BCI and S&P GSCI). We employ an EGARCH model to take into account the high volatility of oil prices and some stylized facts characterizing this volatility. We find that the impact of OPEC’s announcements on oil prices (i)evolves over time and among decisions, (ii) is more significant for production cut and maintain, (iii) is different for WTI and Brent prices, and (iv) is sensitive to the benchmark index. Moreover, OPEC’s decisions depend on the exploration and extraction cost of more expensive/unconventional oil resources.
4. Concluding remarks and policy implications
The aim of this paper is to contribute to the existing literature on the OPEC role as a major player in oil markets through the impact of its production quotas announcements on oil prices during the period March 1991-February 2015. We use the event study methodology and measure abnormal returns and volatility by the market model and the EGARCH model respectively. We opt for this last to capture some well-known stylized facts characterizing volatility, which differentiates our paper from a few other papers utilizing a GARCH model. To enrich the analysis and for robustness purposes, we examine the impact of OPEC decisions on both WTI and Brent daily returns and use two indices as proxies for the market portfolio (BCI and S&P GSCI). We find that the announcements effect on oil prices varies across periods, production decisions, oil prices and benchmark indices. Our results suggest that OPEC is less influential during periods when oil prices are high the more so as above a certain level price, unconventional oil resources are economically viable. However, although the effect of OPEC decisions is more pronounced when prices are low, OPEC members may face a dilemma: keeping prices at low levels could prevent high cost oil producers from entering the market, but, at the same time, could reduce OPEC members’ revenues. Oil prices respond differently to quotas changes: a reduction or a status quo in production results in significant cumulative abnormal returns in contrast to an increase in production. These decisions reflect disagreements or a lack of discipline among OPEC’s members and the necessity for OPEC to take into account previous unilateral quotas changes. More specifically, a cut decision has a stronger effect and is anticipated by the market when price fluctuations are lower. These reactions may also diverge in significance and magnitude for WTI and Brent crude oil. Similarly, the use of a different index (S&P GSCI or BCI) may alter the results as a consequence of the importance of oil prices in the composition of the index. The role of unconventional oil is increasing in energy markets. The technological improvements allow for a greater unconventional oil production and unconventional reserves are now estimated to be higher than conventional reserves. It would be interesting to conduct in the future a similar study on the impact of OPEC production decisions, given the role of unconventional oil. Since unconventional oil may change the oil supply, one future research could focus on the factors affecting the supply of the two oil resources. Finally, as unconventional oil may be at the origin of important structural changes, another research could examine the fundamental detrminants of the oil price evolution over time.