Abstract
This paper studies the target pricing zone (TPZ) hypothesis for crude oil by examining price clustering in the dollar digit. It is hypothesized that price clustering occurs within an established TPZ if OPEC is able to defend the upper and lower bounds through output changes. The results show that prices strongly cluster around the dollar digit value of 9 within the TPZ sub-periods, but not outside the sub-periods. Furthermore, the degree of clustering declines when production capacity utilization is high and when production significantly exceeds quotas, consistent with OPEC's inability to defend the zone. Nine-centered clustering also results in lower contemporaneous and next-day volatility. These results support the target pricing zone hypothesis of crude oil.
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