Wall Street Journal Stories and Oil Prices

Abstract

Commodity markets are often assumed efficient yet commodities are not the same as shares and the structure of commodity markets can differ considerably from the structure of share markets. As a result we choose to explore the efficiency of the crude oil market using Wall Street Journal (WSJ) announcements and crude oil prices (West Texas intermediate crude prices, New York Mercantile Exchange light sweet crude oil futures contract prices of various maturities and a value-weighted oil industry share price index) drawn from the period 1983 to 2006. The WSJ articles chosen for analysis focus on changes in crude oil production, pricing and/or OPEC membership. We find that commodity prices decrease (increase) with announcement of production increase (decreases). OPEC accounts for most of the production based articles with production decrease announcements having most price impact during periods of backwardation. There are few OPEC membership change announcements and so these are analysed within a multivariate framework though we find that commodity prices tend to increase where an increase in OPEC membership is mooted.

Keywords: Crude oil price, information efficiency, storage, OPEC, Wall Street Journal

JEL Classification: G14