How to ‘Trump’ the energy market: Evidence from the WTI-Brent spread

Abstract

Donald Trump’s use of Twitter was unprecedented. Many of Trump’s strong statements in reference to the U.S. oil & gas industry were intended to advertise his domestic policy agenda aimed at supporting re-industrialization and investment. Did his Twitter messages actually reach domestic oil producers, refiners and transport operators, or rather speculators willing to financially gamble on new information sources? To answer, we look at the WTI-Brent spread, which commonly reflects supply bottlenecks in the U.S. crude oil sector. We use a nonlinear modelling approach where Trump’s tweets are allowed to impact the persistence of market volatility regimes. We find that some of his tweets increase the likelihood of wider spreads, undermining the global status of the WTI benchmark. There is also a negative market impact on proxies for liquidity and speculative activity. Policy recommendations are outlined to counteract the consequences of market speculative behaviour driven by political noise.