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Jumps in Oil Prices: The Role of Economic News

Abstract:
Previous research has been unable to identify a strong link between crude oil prices and economic news. We reexamine this relationship using high frequency intraday data and relatively new methodology to estimate jumps in oil prices. We find a surprisingly strong correspondence between high frequency jumps in oil prices and the arrival of new economic information, with the largest jumps tending to be preceded identifiable economic news. These results indicate that oil prices respond very rapidly to new economic data in ways that appear consistent with economic theory, and also suggest that economic news, rather than speculation unrelated to the economic environment, drives jumps in oil prices.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Petroleum – Policy and Regulation; Energy Investment and Finance – Corporate Strategy; Energy Modeling – Energy Data, Modeling, and Policy Analysis

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
D92 - Intertemporal Firm Choice: Investment, Capacity, and Financing
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination

Keywords: Oil, Jumps, Macroeconomic news announcements

DOI: 10.5547/01956574.34.3.10

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Published in Volume 34, Number 3 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.