Futures Markets Reaction to Crude Oil Inventory News Announcements : Asymmetric Return Response Patterns

This study investigates how prices respond to unanticipated crude oil inventory shocks and how quickly the markets incorporate news in crude oil, gasoline, and heating oil futures markets by using structured vector autoregression (SVAR) models based on EIA inventory report announcement and news about Reuters survey. The results reveal asymmetric return response patterns: a momentum pattern of return response to negative crude oil inventory shocks on news and post-news days is found in all three futures markets, while a reversal pattern of return response to positive crude oil inventory shocks is found in gasoline and heating oil futures markets. By constructing trading strategies, this study confirms that gasoline futures’ momentum pattern of return response to negative shocks and heating oil futures’ reversal pattern of return response to positive shocks after news announcement are persist and stable. These results imply the existence of an underreaction to negative crude oil inventory shocks