Top energy industry officials and researchers gathered at the EIA 2017 Workshop on Financial and Physical Oil Market Linkages on September 19 in Washington, DC. As the statistical agency of the Department of Energy, the administration promotes sound policymaking, efficient markets, and public understanding regarding energy.
Four presenters were invited to speak to officials from the White House National Security Council, US Department of Energy, the Federal Reserve Board, BP of America, and other industry leaders. Those invited were chosen as experts on certain aspects of energy markets and gave multi-faceted perspectives to unpack the complexities of the energy markets.
Among those presenters was Jian Yang, PhD, J.P. Morgan Center for Commodities endowed research chair and CU Denver professor of Finance. He spoke on his study, the effect of crude oil inventory announcement on crude oil futures and option prices.
Other presenters shared research on how exchange rates and other economic activities affect oil prices. These presentations set the stage for a larger discussion led by major industry leaders on the impact of OPEC policies on oil price responses.
How do oil inventory announcements impact prices?
Each week, oil traders and analysts watch for changes in inventory level to set expected oil prices by inferring the laws of supply and demand. If crude oil inventories increase week after week, analysts see those increases as an indicator that demand for oil is falling short of supply.
“We are well informed of critical issues, and our research findings can be impactful and useful to policymakers and the industry.” -Jian Yang
Understanding the impacts of crude oil inventory announcements are crucial in determining oil prices. As the first to study this concept in the context of oil option markets, Yang led a dialogue on how the effect of current crude oil inventory is more persistent on option prices than futures prices. He also spoke on how the effect on option prices is largely driven by the underlying changes in the future prices.
Significant evidence for the crude oil inventory announcement impacts both oil derivative markets, even after the effects of macroeconomic news announcements, and other related energy storage news announcements, both of which are also significant in affecting oil futures prices and options. In other words, the oil inventory prediction shared by the media does not impact current oil prices, but rather the unexpected change of crude oil inventory is what affects prices.
Yang’s research an instant success among peers
An organizer of the workshop commented to Yang, “Your keen comments and thoughtful suggestions, especially your presentation, made us on the right direction to the topical discussions. As we expected, your presentation was one of the best.”
The value of this and other workshops like it is to remain well informed of critical issues and share findings that are useful to policymakers and the industry.
As the research chair for the J.P. Morgan Center for Commodities, Yang sets the Center’s research direction. The Center is known for being an innovative research engine, a leading educator, and a major player of knowledge exchange in the commodities space. Its research and advisory councils are representative of major commodities companies, which ensure the Center’s research direction directly coincides with the major issues currently facing the commodities industry.
