A recent study conducted by the Board of Governors of the Federal Reserve System suggests that the Organization of the Petroleum Exporting Countries (OPEC) plays a crucial role in stabilizing oil markets through its credible decisions and effective communication strategies.
According to the study, which is published on the Federal Reserve’s website, OPEC’s communication efforts have been found to reduce oil price volatility and prompt market participants to rebalance their positions. The analysis indicates that market participants perceive OPEC’s communications as providing significant signals to the crude oil market.
The study utilizes Structural Topic Models to examine OPEC narratives, identifying various topics related to fundamental factors such as demand, supply, and speculative activity in the crude oil market. The empirical strategy employed allows researchers to measure OPEC’s public signal and test its credibility among market participants.
The report emphasizes OPEC’s objective to coordinate and unify the petroleum policies of its member countries, ensuring the stabilization of oil markets. A well-functioning crude oil market, as highlighted by OPEC, can have positive implications for the economy and inflation.
In line with the study’s findings, OPEC recently adhered to its forecast for robust global oil demand growth in 2024 and 2025. The organization raised its economic growth forecasts for both years, citing further upside potential.
According to OPEC’s monthly report, world oil demand is expected to increase by 2.25 million barrels per day (bpd) in 2024 and by 1.85 million bpd in 2025. These forecasts remain unchanged from the previous month. OPEC notes that additional tailwinds to oil demand could be generated by a further boost to economic growth.
The report highlights OPEC’s optimism, stating that a “positive trend” for economic growth is anticipated to extend into the first half of 2024. Consequently, OPEC raised its economic growth forecasts for 2024 and 2025 by 0.1 percentage points.
OPEC and the wider OPEC+ alliance have implemented a series of output cuts since late 2022 to support the market. The recent implementation of a new cut for the first quarter, which took effect last month, underscores their ongoing commitment to stabilizing the oil market.