Do the Major Oil Companies Anticipate Production Allocations? An Examination of Oil and Financial Market Data for Arbitrage Investment Opportunities

Abstract

This article examines an oil stock market index and oil company stock price data in 30-day and 60-day windows on either side of OPEC production allocation meetings. The study investigates causal relationships over the full period in the sample. The results justify asking the question of whether oil companies anticipate and use information on the outcomes of these meetings. Do they encourage or condone cartel behavior? The study concludes that the pricing of crude oil is likely to have more to do with the behavior of oil market protagonists than freely interacting supply and demand forces. This continues to have implications for the health of the global economy and financial system but, more importantly, it means that market anomalies have created possible arbitrage opportunities for investors in oil markets and industries.

TOPICS: Security analysis and valuation, commodities, legal/regulatory/public policy