Is the Oil Market Expecting Rising Supply?


Nov. 20 2020, Updated 10:45 a.m. ET

Futures spread

On July 16, US crude oil August 2018 futures closed ~$6.1 above the August 2019 futures contract. On July 9, the futures spread was at a premium of ~$8.49. Between July 9 and July 16, US crude oil August futures fell 7.8%.

The market’s sentiment toward oil’s demand and the supply situation is reflected in the futures spread. In the past five trading sessions, the spread’s premium has contracted, and US crude oil prices have plunged nearly 8%.

Possible waivers to US sanctions on Iran, the ramp-up of Saudi Arabian and Russian production, and other factors discussed in Part One of this series may have eased the market’s fears of a shortage of oil.

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Energy stocks

Between July 9 and July 16, Oasis Petroleum (OAS), Denbury Resources (DNR), and California Resources (CRC) fell 10.8%, 10.9%, and 16.2%, respectively. They were the underperformers on our list of oil-weighted stocks.

Forward curve

As of July 16, US crude oil futures contracts for delivery between August 2018 and July 2019 were priced in descending order. The price pattern is positive for ETFs that follow US crude oil futures, such as the ProShares Ultra Bloomberg Crude Oil ETF (UCO) and the United States 12-Month Oil ETF (USL).


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