Inventory information arrival and the crude oil futures market

Tarek Chebbi and Waleed Hmedat

International Journal of Finance & Economics, 2024, vol. 29, issue 2, 1513-1533

Abstract: The objective of this paper is to provide a deeper insight into the impact of weekly inventory announcements and especially their associated surprises on crude oil returns and volatility during the period from 27 March 2012 to 2 October 2018. The results can be summarized as follows. First, we find that all inventory surprises exert an inverse impact on the oil price returns. Such impact appears more pronounced during the collapse and post‐collapse periods, than during the pre‐collapse period. Second, we show that the reducing volatility effects of inventory shocks that we establish for the whole period are entirely attributed to those observed in the pre‐collapse period. Third, the different effects obtained for positive and negative shocks support evidence that our split of inventory news by nature matters. Fourth, compared to macroeconomic and unconventional monetary news, the inventory statements appear as the most pertinent news during the event window. Fifth, we find evidence also that the effect of the uncertainty about economic stance, when it is significant, changes the way the oil prices and volatility react to inventory surprises, and hence weakens the effectiveness of the inventory policy. Lastly, we make an original use of the information content of the implied volatility to assess the persistence of the link between the conditional variance and the inventory news. The central finding is that the implied volatility enters with a significant effect on the conditional variance for WTI oil returns and namely with a reduced volatility persistence. Also, a significant effect from inventory surprises namely when we split the announcements into negative and positive news is detected even the implied volatility is introduced exogenously in the GARCH‐type variance specification highlighting the predominance of our main variable.

Date: 2024
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