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EIA Storage Announcements, Analyst Storage Forecasts, and Energy Prices
Co-authored by Louis Ederington, Scott Linn, (Price College of Business, University of Oklahoma), Fang Lin (Pittsburg State University) and Lisa Yang (Jake Jabs College of Business & Entrepreneurship, Montana State University) (The Energy Journal, 2019)
Futures prices for oil and natural gas are important elements of both risk management strategies by energy companies as well as investment and operating decisions. The quality of these futures prices in terms of how well they reflect information about supply and demand conditions cannot be overstressed. An important barometer of shifts in supply and demand is the amount of oil and natural gas in storage in the U.S.
The authors study the properties of both the U.S. Energy Information Administration (EIA) natural gas and crude oil storage announcements for oil and gas stored in the U.S., and professional analyst forecasts of the EIA storage figures. The authors find that analyst storage forecasts bring additional information to the market beyond seasonal patterns in storage and past storage flows, and, that the market promptly incorporates analyst forecasts into oil and gas prices prior to the EIA announcements.
Analyst’s natural gas forecasts efficiently reflect the available information about historic storage behavior, but crude oil forecasts do not. They also find that the price reaction to subsequent EIA natural gas storage announcements is contingent on the level of analyst forecast uncertainty.
The authors’ study makes clear that unexpected changes in natural gas and crude oil in storage have important implications for futures prices and reinforces the scrutiny given to these numbers by the energy community.
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The Relation between Petroleum Product Prices and Crude Oil Prices
Co-authored by Louis Ederington, Chitru S. Fernando, Scott Linn, Huiming Zhang (Price College of Business, University of Oklahoma), and Thomas Lee (Energy Information Administration, U.S. Department of Energy) (Under invited review at Energy Economics, 2020)
The authors present an empirical examination of the relation between real (inflation adjusted) spot Brent oil prices and real spot petroleum product prices, specifically gasoline and heating oil prices.
Based upon weekly price data spanning a 30-year period ending in April 2019, they provide consistent evidence that over the short run changes in oil prices bring about changes in product prices, but product prices adjust with a lag.
The authors find no evidence that product prices cause oil prices neither during the full sample period nor during the period up to the end of 2005. However, evidence that gasoline prices had an impact on oil prices is found for post-2005.
The authors also find that real spot gasoline prices and real heating oil prices do not respond to oil supply shocks, respond transiently to global commodity demand shocks, but do respond to oil-specific demand shocks.
They conclude that spot oil prices bring about spot gasoline and heating oil prices and that this largely occurs through the channel of oil-specific demand shocks. The latter is important as the result informs observers of these energy markets that the demand for oil is a crucial cornerstone of the path through which oil prices impact product prices.
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