Halliday & Matthiessen (2014: 528):
Quoting and reporting are not simply formal variants; they differ in meaning. The difference between them derives from the general semantic distinction between parataxis and hypotaxis, as it applies in the particular context of projecting. In quoting, the projected element has independent status; it is thus more immediate and lifelike, and this effect is enhanced by the orientation of the deixis, which is that of drama not that of narrative. Quoting is particularly associated with certain narrative registers, fictional and personal; it is used not only for sayings but also for thoughts, including not only first-person thoughts, as in... and watching that trial wondering whether in fact he was innocent or not and I couldn’t make up my mind, after a while I thought ‘No, I’m sure he’s guilty’.
but also third-person thoughts projected by an omniscient narrator, as in‘And that’s the jury-box,’ thought Alice.
So after about two hours he thought ‘Well they’re not coming back’ and he started hitchhiking.
Reporting, on the other hand, presents the projected element as dependent. It still gives some indication of mood, but in a form which precludes it from functioning as a move in an exchange; the mood is projected, not straight. And the speaker makes no claim to be abiding by the wording.