5. Empirical Results. 5.1 Event study analysis

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1 5. Empirical Results 5.1 Event study analysis Our main empirical results of event study are presented in the following sections. Rather than report full details of the event study results, we only provide results for some return measures over a limited selection of event windows, namely, (a) the day 0 abnormal return; (b) the CAR from days -1 to +1 ;(c) the CAR from days -2 to +2. The significant features of our findings are discussed in the following Complete Samples Table 5-1 reports the response of the oil-related markets for Brent Crude futures, oil industry indices, and stock prices of oil companies in six countries to all announcements forecasted by IEA s official Oil Market Report. The results for Brent Crude futures show that on day 0, no significant reaction is documented. However, Brent Crude oil futures prices react strongly across event windows around the announcement date. Moreover, the abnormal return on the day -1 is significant from zero at the 1% level. The standardized ARs and CARs plot from 1990 to 2005 that are shown in Figure 5-1 highlight the results that there seems to be a negative impact around the announcement dates and information regarding the IEA s report has seemed to been leaked to the market prior to announcements. As for the results of announcements in IEA and returns in oil price indices for different countries, we find that all countries, with the exception of the United States, do not react significantly on the day of the announcements. Nevertheless, once the event window is expanded, we find significant CARs for France, the United States, the United Kingdom and Norway. The evidence for Japan and Canada, however, provides no sharply significant responses. Also, we find that 4 out of the 6 countries reveal negatively abnormal return estimates before announcement date, 3 countries of which are statistically significant. With regard to the results of announcements in IEA and returns in individual companies for different countries, the evidence shows that there are mainly negative market reactions around the announcement date. It is seen that 22 sample companies have 21

2 Table 5-1 Analysis of Abnormal Returns and Cumulative Abnormal Returns for the Complete Sample of IEA s Announcements on Brent Crude Futures, Oil Industry Indices and Stock Prices of Oil Companies in Six Countries Event Period Brent Crude Japan Canada France United States United Kingdom Norway Day ** (-0.808) (0.351) (0.840) (-1.231) (-2.446) (-1.135) (-0.183) -1 to *** *** *** * (-5.458) (-0.646) (-0.829) (-3.639) (-6.444) (-1.955) (-0.752) -2 to *** *** *** *** *** (-6.264) (-0.972) (-0.787) (-4.630) (-9.687) (-3.391) (-4.583) Significant Companies Negative or Positive Effect Number of Neg. or Pos. Effect Notes: 1. The data of Japan, Canada, France, United States, United Kingdom, and Norway belong to oil and gas price indices. 2. ***, ** and * indicate coefficients significantly different from zero at 1%, 5%, and 10% level, respectively. 3. and + represent the numbers of negative and positive impacts on significant companies using all samples of announcements. 22

3 Figure 5-1 The Standardized Abnormal Returns and Cumulative Abnormal Returns from 1990 to 2005 on IPE Brent Crude Futures negative effects but only 8 sample companies having positive effects on IEA s announcements among the 30 companies which are significantly affected by IEA s reports. Overall, we find that the reaction of Brent Crude futures, oil industry indices and stock prices in different countries are mostly negative, which suggest that the reports of International Energy Agency announcements seem to affect the oil-related markets negatively. Furthermore, a possible explanation of the significant returns before the announcement in IEA is that perhaps the market forms expectations because brokers and traders have an incentive to provide current clients with the anticipated forecasts prior to announcements Oil Supply Change in Non-OPEC Countries We rank the sample announcements according to their relative non-opec oil supply changes compared to last month s Oil Market Report in this section. The results are 23

4 shown in Table 5-2. We expect that oil-related markets should have a positive (negative) impact when forecasted supply relative to last report decreases (increases). We fail to see a significant reaction on the announcement day regardless whether the non-opec oil supply decreases or increases for Brent Crude futures. Even so, the coefficients for decreased and increased supply on the day 0 correspond to our expectations. The increased supply in non-opec countries earns a statistically significant standardized abnormal return of -42.6% on the day -1 (unreported) and -26.1% over the days -1 to +1. The evidence also shows that most countries (five out of six) have a positive reaction to the announcements of decreased oil supply. Nevertheless, only Canada, the United States and the United Kingdom have statistically significant abnormal returns on the day 0 and across the event windows. As for the reports of increased supply in non-opec countries, the results show that all countries have negative returns and statistically significant results except for Japan and Norway. When we extend event windows, we observe each country has a negative and significant impact. Regarding the somewhat insignificant change of supply in non-opec countries for Norway, we think it could be due to the fact that oil exploration activities in Norway may be mainly driven by oil demand rather than oil supply since Norwegian oil production has increased substantially over recent decades. Furthermore, Norway itself is an extremely small oil consumer and almost all of its oil production is exported to other countries. According to statistics, Norway consumes little more than 200,000 barrels a day of oil while exporting nearly its entire production of 3.3 million barrels a day. We will examine this argument later. Moreover, the results of oil companies in six countries show that it seems to have no significant differences between the reaction to the announcements of decreased and increased supply in non-opec countries. The evidences show that there are 21 sample companies affected by decreased supply and 19 sample companies affected by increased supply among the 35 significant companies. According to the results presented above, it is seen that the change of oil supply in non-opec countries seems to plays an important role in affecting oil-related markets. The emergence of non-opec competitors over the past decade has seriously limited OPEC s ability to influence global oil markets, and their political alliances being forged 24

5 Table 5-2 Analysis of Abnormal Returns and Cumulative Abnormal Returns for Oil Supply Change in Non-OPEC Countries of IEA s Announcements on Brent Crude Futures, Oil Industry Indices and Stock Prices of Oil Companies in Six Countries Event Period Brent Crude Japan Canada France United States United Kingdom Norway Day *** * ** 0.356*** * 0.240* *** (1.340) (-1.483) (1.464) (-1.112) (2.878) (-1.712) (1.162) (-2.547) (2.688) (-1.937) (1.811) (-2.836) (-0.440) (-0.281) -1 to ** * *** 0.548*** *** *** 0.472*** *** ** * (-2.455) (-1.845) (1.630) (-3.782) (4.137) (-5.143) (1.347) (-3.598) (3.563) (-4.795) (0.946) (-2.530) (-0.135) (-1.934) -2 to *** *** 0.475*** *** ** *** *** *** *** ** *** (-4.887) (-1.595) (-0.964) (-4.636) (3.586) (-5.992) (-2.329) (-3.588) (0.469) (-7.634) (-3.507) (-3.049) (-2.063) (-7.140) Significant Companies Number of Companies Affected by Decreased or Increased Supply Notes: 1. The data of Japan, Canada, France, United States, United Kingdom, and Norway belong to oil and gas price indices. 2. ***, ** and * indicate coefficients significantly different from zero at 1%, 5%, and 10% level, respectively. 3. and + represent the decreased and increased supply in Non-OPEC countries relative to last report. 25

6 with the United States gives added weight to incentives not to restrict oil output. Ramcharran (2002) documents that one of the reasons why OPEC faces a challenging future comes from increasing oil supply from non-opec sources. These growing sources of non-opec oil have reduced the dependence on oil from OPEC. Hence, we think the change of output in non-opec countries has much impact on oil prices. Nevertheless, Bjornland (2000) finds that the oil supply shocks are the most synchronized shocks in the 1970s, whereas from the middle 1980s oil demand shocks are more important. Pool (2005) also points out that many past oil shocks were driven by supply disruptions, such as the OPEC oil embargo in 1973 and the Iranian revolution in 1979, while the recent surge in oil prices is being driven by high demand for oil, led by rapid increases in the United States, China and India. In their point of views, it seems that volatility in oil price movement for past decade mainly comes from oil demand increases instead of oil supply decreases. For this reason, we separate the forecasts of oil demand change in North America and China in the following sections to examine whether the change of oil demand in IEA s release indeed affects these oil-related markets more strongly Oil Demand Change in North America The standardized abnormal return analysis for the forecast change regarding oil demand in North America is reported in Table 5-3. We expect that oil-related markets should have a negative (positive) impact when forecasted demand relative to the last report decreases (increases). The results for Brent Crude futures contracts suggest a negative effect on decreased demand in North America relative to last month s report. Abnormal return on day 0 is statistically significantly negative at the 10% level. The cumulative abnormal returns are also significantly negative across event windows around the announcement date. For the increased demand in North America, we observe that there are large abnormal returns on the announcement dates. However, once the event window is expanded, the CARs dropped and are no longer statistically significant. Reaction of the oil prices in the Brent Crude market to oil demand change in North America is strong, especially for the decreased demand in North America. The results regarding decreased oil demand in North America for individual country suggest that negative effects exist, except Japan and Canada, on the day of 26

7 Table 5-3 Analysis of Abnormal Returns and Cumulative Abnormal Returns for Oil Demand Change in North America of IEA s Announcements on Brent Crude Futures, Oil Industry Indices and Stock Prices of Oil Companies in Six Countries Event Period Brent Crude Japan Canada France United States United Kingdom Norway Day * 0.379*** *** 0.311** (-1.649) (2.706) (1.098) (-0.496) (0.357) (0.613) (-1.158) (-0.004) (-0.548) (1.313) (-1.306) (0.244) (-3.803) (2.224) -1 to *** * *** ** *** (-3.178) (1.579) (1.562) (-1.917) (-0.904) (0.010) (-2.660) (0.992) (-1.126) (0.113) (-2.179) (-0.259) (-4.430) (1.586) -2 to *** *** *** *** *** *** * *** ** (-2.659) (-0.111) (-0.397) (-4.029) (-0.074) (-1.389) (-5.131) (-0.035) (-2.737) (-3.476) (-5.217) (-1.743) (-6.371) (-2.201) Significant Companies Number of Companies Affected by Decreased or Increased Demand Notes: 1. The data of Japan, Canada, France, United States, United Kingdom, and Norway belong to oil and gas price indices. 2. ***, ** and * indicate coefficients significantly different from zero at 1%, 5%, and 10% level, respectively. 3. and + represent the decreased and increased demand in North America relative to last report. 27

8 announcements. While abnormal return is statistically significant on day 0 for only Norway at the 1% level, the cumulative abnormal returns are negative and significant around the announcement date across all countries except for Japan and Canada. As for the increased oil demand in North America, the evidence in this section shows that there is no significant reaction on the announcement days and across event windows. However, we find that abnormal return is statistically significant on day 0 for Norway. We also notice that there is a positive but insignificant market reaction on day 0 for Canada, the United States and the United Kingdom. Furthermore, we find that expected signs are correct and cumulative abnormal returns are statistically significant mainly come from the decreased oil demand in North America. With regard to the analysis of individual company s results, we also find that these oil-related companies respond more to decreased oil demands than increased oil demands in North America. There are 18 sample companies affected by decreased demand, only 2 companies affected both by decreased and increased demand, and 10 sample companies affected by increased demand in North America among the 30 significant companies classified by demand change in North America. Shihab-Eldin et al (2004) point out that oil demand in North America increases faster than in other OECD regions, primarily because of greater economic growth. According to the statistics provided by IEA, the economy in North America accounts for about 31% of world oil demand in our sample period. Additionally, Bromley (2005) shows that nearly three-quarters of European oil exports go mainly to destinations in North America. Therefore, we think that this might be the reason why the change of oil demand in North America has a great influence on Brent Crude futures and oil net exporter of Norway in Europe Oil Demand Change in China Table 5-4 provides evidence on the abnormal returns and cumulative abnormal returns for the oil demand change in China reported by IEA. Specifically, although abnormal return for Brent Crude futures on the day 0 concerning decreased forecast in China demand is statistically significant, a negative coefficient impact of the decreased demand is not detected. Besides, the results also suggest no considerable positive effect 28

9 Table 5-4 Analysis of Abnormal Returns and Cumulative Abnormal Returns for Oil Demand Change in China of IEA s Announcements on Brent Crude Futures, Oil Industry Indices and Stock Prices of Oil Companies in Six Countries Event Period Brent Crude Japan Canada France United States United Kingdom Norway Day ** * *** 0.303** (2.393) (-0.423) (0.119) (-0.621) (1.425) (0.914) (1.008) (-1.102) (1.845) (1.295) (-0.413) (0.404) (-3.261) (2.119) -1 to * * * * 0.411*** *** (-0.162) (-0.227) (-0.524) (-1.812) (-1.310) (1.848) (0.667) (0.75) (-0.199) (1.795) (-1.943) (2.878) (-3.283) (0.534) -2 to ** *** * *** 0.483*** *** 0.372*** *** (-0.356) (-0.553) (-2.137) (-3.670) (-0.897) (1.933) (-3.773) (3.378) (-1.546) (-0.324) (-5.719) (2.605) (-9.263) (-1.190) Significant Companies Number of Companies Affected by Decreased or Increased Demand Notes: 1. The data of Japan, Canada, France, United States, United Kingdom, and Norway belong to oil and gas price indices. 2. ***, ** and * indicate coefficients significantly different from zero at 1%, 5%, and 10% level, respectively. 3. and + represent the decreased and increased demand in China relative to last report. 29

10 for the increased demand in China. The evidences of the abnormal returns and cumulative abnormal returns for these six countries with regard to oil demand change in China show that no significant impact on decrease of oil demand in China at the event date, except for the results of Norway. Specifically, we see a negative market reaction on the day 0 for the United Kingdom and Norway. However, as we expand the event window, a negative impact of decreased demand in China is generally seen for each country. In contrast, the increased oil demand in China produces the positive association on the day 0 for all countries except for Japan and France. But we observe significantly abnormal returns on the day 0 only for the cases of Norway. Besides, all countries, except Japan, show strong and statistically significant cumulative abnormal returns across event windows. With reference to analysis of individual company, we find that the change of increased demand in China forecasted by IEA plays an important part in affecting the oil-related companies. Among the 62 significant companies sorted by demand change in China, we see there are 22 sample companies affected by decreased demand, 3 sample companies affected by both decreased and increased demand, and 38 sample companies affected by increased demand in China. Put together, there seems to be no impact for Brent Crude futures contracts around the announcement date with regard to China oil demand change. We think that the results do not mean that oil demand change in China does not play a role in global oil demand. Energy indicators from OPEC estimate that China s economy over the last 15 years has an annual GDP growth of about nine percent. A natural outcome of that is that China s consumption demand has strongly increased for last decade. Particularly, oil consumptions have exhibited an accelerating trend since One possible explanation of insignificance is that we are limited by the subject we adopted. Since Intercontinental Exchange (ICE) acquired the International Petroleum Exchange (IPE) in 2001, since then the ICE Exchange also introduced electronic trading for Brent Crude oil. Now the trading hours for IPE Brent Crude futures run daily from 01:00 a.m. to 22:00 p.m. in London local time. Yet the Oil Market Report in IEA has always been released at 09:00 London local time. This factor in extended electronic trading may affect our empirical results from 2001 to We posit that this factor contributes to diminishing impact of 30

11 forecasted change of oil demand in China on IPE Brent Crude so as to be not consistent with our expectations. A second possible explanation is that as above, Bromley (2005) points out that nearly three-quarters of Europe s oil exports go to North America. For this reason, we think Brent Crude market is affected more greatly by oil demand in North America than China. In sum, these results seem to confirm the existence of a certain relationship between oil-related market and the International Energy Agency s monthly announcements. The change of oil demand in North America affects IPE Brent Crude greatly since North America is a relatively important market of oil demand for oil exporters in Europe. Moreover, the effects of IEA s release vary considerably across different countries. The evidence of non-opec supply shows that IEA s report influences Canada, France, the United States and the United Kingdom greatly and the results suggest that British and Norwegian oil stock markets have a great reaction on oil forecast of demand in North America and China. According to Bjornland (2000), the structure of the economy probably plays an important role to oil price impacts. Countries with a high production dependence on oil and a high share of oil consumption bundle suffer more from oil price impacts. Figure 5-2 shows the average oil production and consumption for each county from 1994 to Canada, the United States, the United Kingdom and Norway produce oil. Furthermore, the United States is the world s first largest oil consumer. Norway is the third largest oil exporter after Saudi Arabia and Russia, and provides much of Western Europe's crude oil and gas requirements. The oil industry accounts for a substantial share of the Norwegian economy. Despite the lack of significant domestic production in France, International Energy Agency locates in Paris France. Therefore, we think that the monthly announcements in IEA s Oil Market Report have a great influence on oil-related market in these five countries. In contrast, however, in Japan, it is difficult to explain the effects of IEA s announcements on its oil stock returns. Although Japan has the highest proportion of its energy needs served by oil, deriving close to 54% of its energy from oil in 2004, the effect on the Japanese oil market is relatively small. Barrell and Pomerantz (2004) show that the impact of oil shocks were affected by the oil intensity of output, measured as energy use per dollar of GDP. We think that it may suggest some inertia of Japanese companies to absorb the impact of the announcement and react immediately 31

12 Figure 5-2 Average Oil Production and Consumption for Japan, Canada, France, the United States, the United Kingdom and Norway Source: BP Statistical Review of World Energy 2005 Figure 5-3 Oil Consumption per unit of GDP (OECD=100) Source EIA/Annual Energy Outlook

13 Table 5-5 Analysis of Empirical and Significant Samples for Individual Company in Japan, Canada, France, the United States, the United Kingdom and Norway United United Country Japan Canada France Norway Total States Kingdom Empirical Samples Significant Samples (A) (B) ± (C) ± (D) ± Notes: 1. (A), (B), (C) and (D) represent the number of significant companies using all samples, supply change in non-opec countries, demand change in North America, and demand change in China for IEA s announcements. 2. and + in (A) represent the numbers of negative and positive impacts on significant companies using all samples of announcements. 3., ± and + in (B), (C), and (D)are the numbers of decreased, both decreased and increased, and increased supply in non-opec countries, demand in North America and China of announcements affect these significant firms. 33

14 because the oil intensity of the Japanese economy is smaller than other countries as shown in Figure 5-3. The evidence for the analysis of individual company in Table 5-5 shows that there are 106 sample companies among 202 companies in these six countries that react significantly to the announcements of IEA s Oil Market Reports. For each country with the exception of the United Kingdom, it seems that almost half the companies have a statistically significant effect. That is to say, IEA s monthly report has a considerably influence on the oil-related markets. Besides, we observe that there are 30 sample companies affected by complete samples of announcements. There are 35, 30 and 62 sample companies affected by the classifications of supply change in non-opec countries, demand change in North America and China. Consequently, the evidence seems to support the notion that oil demand change is more important than oil supply change. Particularly, the change of demand in China forecasted by IEA contributes to the sensitivity of returns of these oil-related companies. The focus of empirical results of oil companies in six countries is also consistent with the trend of the annual growth in Figure 5-4. As far as oil production in non-opec countries is concerned, we see non-opec oil production has fluctuated drastically. Annual growth of oil production has decreased until From 2000, it increased substantially for all years except for uncertainty and turmoil in Venezuela, Nigeria and Iraq, and heavy infrastructure damage by hurricanes in the Gulf of Mexico in recent years. In the case of oil demand growth, it can be attributed not only to North America, but also to the increase of demand from China. However, we can see that the only structural factor is the demand coming from China that has grown steadily since the mid 1990s. The rate at which oil demand in North America is growing has slowed substantially until According to EIA, most of the recent uptrend in oil demand for North America comes from the transportation sector, which now represents two-thirds of all oil demand in the United States. Therefore, we think that these oil-related companies may focus on the changes of these three trends: both decreased and increased supply in non-opec countries, decreased demand in North America and increased demand in China in the sample period we study. 34

15 Figure 5-4 The Annual Growth of Oil Supply and Demand from 1995 to 2005 Source: IEA Annual Statistical Supplement and User s Guide 5.2. Cross-sectional analysis The results of cross-sectional regression using pooled data is reported in Table 5-6. Our results show that there is some statistically significant explanations of cumulative abnormal returns over -1 to +1. First, considering Reg1 which include just the five dummy variables, we find that the estimated intercept is positive and statistically significant at the 1% level for American companies. Further, as these coefficients measure the change in mean relative to the base case, we observe all coefficients on the five dummies are significant at the 5% level indicating that these mean cumulative abnormal returns are statistically different from the mean CARs around the announcement date in the United States. We also find that United States and Norway have largest responses to IEA s reports. The United States, which uses about a quarter of the 35

16 Table 5-6 Cross- Sectional Analysis of Cumulative Abnormal Returns Measured over -1 to +1 for IEA's Announcements Using Pooled Data Variable Reg 1 Reg 2 Reg 3 Intercept 0.009*** 0.006*** 0.008*** (12.957) (11.546) (11.897) NOS i (1.183) (1.303) NAD i 0.010*** 0.010*** (3.956) (3.891) CD i 0.018** 0.019** (2.075) (2.140) LVol i 0.009*** 0.008*** (6.006) (5.801) LSize i 0.888*** 0.885*** (40.167) (40.269) D Japan *** *** (-3.781) (-3.918) D Canada *** *** (-5.701) (-5.601) D France 0.009*** *** (-3.650) (-3.816) D Kingdom ** ** (-2.455) (-2.198) D Norway 0.013*** 0.012*** (5.575) (5.653) R Nobs ***, ** and * indicate coefficients significantly different from zero at 1%, 5%, and 10% level, respectively. 36

17 Table 5-7 Cross-Sectional Analysis of Cumulative Abnormal Returns Measured over -1 to +1 for IEA's Announcements in Japan, Canada, France, the United States, the United Kingdom and Norway Variable Japan Canada France United States United Kingdom Norway Intercept *** (0.882) (-0.029) (-1.128) (12.051) (0.357) (0.000) NOS i * 0.009* (-0.824) (0.152) (1.933) (1.755) (0.647) (0.626) NAD i ** 0.008** * (1.279) (1.382) (2.103) (2.117) (0.595) (1.727) CD i *** * (-0.127) (2.775) (0.536) (1.681) (0.308) (0.780) LVol i ** *** ** (0.837) (2.574) (1.315) (4.640) (-0.847) (2.494) LSize i *** 1.087*** 1.737*** 0.764*** 1.875*** 0.595*** (15.437) (22.207) (17.465) (24.882) (13.184) (6.176) R Nobs ***, ** and * indicate coefficients significantly different from zero at 1%, 5%, and 10% level, respectively. 37

18 world's daily oil consumption, not only is the largest consumer of oil, but also the third largest oil producer in the world. Norway is the world s seventh largest petroleum -producing nation and its third largest exporter of crude oil. Petroleum-related activities top the list of Norwegian exports. The export value of sales of crude oil and gas in 2005 is equivalent to 47% of total Norwegian exports. Therefore, we think that the economies in both countries are greatly dominated by the oil sector. Second, with regard to Reg2 and Reg3 which augments Reg2 with the control variable for countries, we see that the coefficients on the North America demand and China demand are all positive and significant at the 1% level. Besides, we observe these companies overall react more strongly on China demand than North America demand. The evidence is consistent with Bromley (2005) who showed clearly that the locus of demand for oil import is going to continue to shift away from the United States, Europe and Japan towards the Asia Pacific, especially to countries such as China and India. Nevertheless, we do not see any significance about the coefficient on the non-opec supply in both cases. In the case of regression analysis for individual country reported in Table 5-7, we find that the coefficients on the non-opec supply, North America demand and China demand are all positive with the exception of Japan indicating that IEA s announcements about these three forecast categorizations produce a positive impact. Moreover, we see that the coefficient on the LSize are all positive and statistically significant, representing large companies respond more positively to the announcements than small companies. We conjecture that this could reflect the economics of scale in production and consumption oil for large companies. And the coefficients on the LVol in Canada, the United States and Norway are significant positive. Nevertheless, those in Japan, France and the United Kingdom are statistically insignificant. This significant pattern of price-volume relationship is consistent with the patterns found by Moosa and Silvapulle et al. (2003). Moosa and Korczak (1999) also showed that the correlation between volume and price change is insignificant in the crude oil futures market. We think these insignificances may be attributed to lack of a high degree of liquidity in trading volume. Furthermore, the evidence in Table 5-7 suggests that the announcement effects in IEA vary considerably among different countries. We observe that the United States accounts for most of the significant announcement effects. Mork et al. (1994), Bjornland (2000) 38

19 Figure 5-5 The Average End-Use Price for Gasoline from 1993 to 2004 in US$ and Jimenez-Rodriguez (2005) also find a similar result that the effects of oil price shocks on the real economic activity of the main industrialized countries are different and the largest accumulated effect of an oil price shock is on the American economy. We find that these oil-related companies in the United States are affected not only by the change of non-opec supply, but also by the demands in North America and China, especially for China demand. The possible reason for the largest impact of IEA s reports on the United States is the relatively low taxes (value-added tax) on oil products in the United States. In the United States, taxes make up an insignificant part of end user prices of oil products. For instance, their share in the pump prices of gasoline as shown in Figure 5-5 and diesel is much smaller than in Europe and Japan. Because of these low taxes, the influence of the change in the price of crude oil on the CPI is not easily subdued. Besides, the coefficients in Canada, France and Norway are significant in either supply or demand variable of IEA s forecasts. The results for Japan and the United Kingdom, however, are more complicated. Our evidence for both countries shows that the response of cumulative abnormal returns to IEA s announcements cannot be justified by the change of supply and demand variables. Although United Kingdom is a net oil exporting country, the 39

20 number of observations for the United Kingdom in our study is limited due to the limited availability of historical data. Therefore, we think that insufficient samples may cause the insignificant announcement effects for these companies. With regard to the case of Japan, the oil-import expenditures are small relative to Japanese exports. Moreover, Ono (2004) and Kato (2005) point out that the energy efficiency and oil utilization in Japan have been improved dramatically since the oil crisis in Individual companies in Japan have improved their energy efficiency and the industrial structure has been transformed into one featuring a lower dependence on energy. The improvement in the oil consumption efficiency has led a decline in the price volatility came from oil price shocks. What is more, more than half of the retail gasoline price is accounted for by the gasoline tax shown in Figure 5-5, so the change of crude oil price would not cause a sharp change of retail price. Consequently, we think that these might be the reasons why the oil returns of Japanese companies do not react to the monthly IEA s reports. 40