Oil Market Efficiency, Arrival of Information, and Oil Market Turbulence

This paper analyses the informational efficiency of the WTI crude oil markets using a recently proposed quantitative measure for market inefficiency. The procedure measures the extent to which observed oil price behaviour deviates from the Random Walk benchmark which represents an efficient market. The key findings are, first, that crude oil market inefficiency varies over time. Second, abrupt increases in inefficiency occur during extreme episodes such as the price downturns witnessed in 2008, 2014, and early 2020, as well as the begin of the Ukraine war in 2022. Third, this paper argues that this deviation from the random walk benchmark is caused by the problems with processing new information. Thus, the paper proposes to interpret oil market inefficiency as oil market turbulence. Fourth, the paper demonstrates that oil market turbulence (or the drivers behind it) have negative macroeconomic consequences.