EIA Storage Announcement, Analyst Storage Forecasts, and Energy Prices

Ederington, Louis; Lin, Fang; Linn, Scott; and Lisa (Zongfei) Yang (2019). The Energy Journal

Publication

The energy sector has undergone revolutionary changes over the last 15 years. These developments have been accompanied by a shift in investor focus and resulted in a significant increase in open interest and volume in both oil and natural gas futures. Market participants pay close attention to weekly announcements of the change in oil and natural gas in storage by the Energy Information Administration (EIA), and it is well-documented that energy prices react to these announcements.

Left largely unexplored, however, are the following issues: the accuracy of the analyst forecasts, how the forecasts contribute to price discovery, and how the energy market reaction to the EIA release depends on previous analyst forecasts. This paper uses data on the daily closing prices of natural gas and crude oil futures contracts to examine the accuracy of the analyst storage forecasts and how efficiently natural gas and crude oil prices react to both the analyst forecast and the subsequent EIA announcements.

This paper finds that the natural gas price reaction to the EIA announcement is contingent on the level of analyst forecast uncertainty, and that announced storage figures greater or less than analysts expected tend to partially reverse the following week. In addition, prices react to the surprise in analyst forecast announcements prior to the EIA announcements, indicating that the forecasts bring new information to the market. The results of this paper indicate that both the EIA storage announcements and analyst forecasts of the EIA figures contribute to informational efficiency in the natural gas and crude oil markets.