Chart of the week

Our chart of the week shows the relationship between crude oil (DBO)(UCO) (USL) prices and the changes in its forward curve. Historically, periods of weak crude oil prices have coincided with a “contango” structure, while periods of strong crude oil prices have overlapped with a “backwardation” structure.

How Oil’s Forward Curve Is Reacting to Oil’s Upside

Between May 12 and May 19, the spread contracted from $1.66 to $1.09, while crude oil prices rose 5.2%. The decrease in the spread could suggest that concerns about crude oil’s demand-supply imbalance are easing, which could have helped push prices higher.

Crude oil’s forward curve dynamics can affect oil storage and transportation MLPs (AMLP). The forward curve can impact upstream oil producers’ (XOP) hedging decisions. The curve’s dynamics can also have important implications for the performance of commodity-tracking ETFs such as the United States Oil ETF (USO). As a result of the current contango structure in the oil market, USO has underperformed crude oil prices.

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