Research Technical Paper: News, Noise and Oil Price Swings

A research paper by Luca Gambetti and Laura Moretti examines oil price movements that result from changes in expectations about future developments in the oil market. It argues that oil prices fluctuate due to agents’ reactions to news about oil fundamentals, such as production. However, some news will materialise and affect oil fundamentals, while other news is “pure noise” and has only a temporary impact on prices.

The research finds:

• “Fundamental shocks” have a permanent effect on oil production and oil prices, but only a temporary impact on global demand.
• “Pure noise” shocks have no statistically significant effect on oil production and a temporary impact on oil prices and global demand.
• A sizable part of oil price swings is attributable to noise shocks that do not have any effect on oil production or global demand indexes.

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