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Crude Oil: Analyzing the Futures Spread

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Nov. 20 2020, Updated 4:28 p.m. ET

Futures spread

On August 20, US crude oil October futures closed ~$3.1 above the October 2019 futures contract. On August 13, the futures spread was at a premium of ~$3.62. On August 13–20, US crude oil October futures fell 1.7%.

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Are oil’s oversupply concerns rising?

The market’s sentiment toward oil’s demand and supply situation is reflected in the futures spread. In the past five trading sessions, the spread’s premium contracted. US crude oil prices have fallen by nearly two percentage points.

In the previous part, we discussed that US crude oil inventories stayed 1% above the five-year average, which might have increased oil’s oversupply concerns. In Part 1, we discussed the factors that might stop oil’s recovery.

Energy stocks

On August 13–20, EOG Resources (EOG), Pioneer Natural Resources (PXD), and Diamondback Energy (FANG) fell 5.5%, 5.8%, and 8.2%, respectively. They were the underperformers on our list of oil-weighted stocks.

Forward curve

As of August 20, US crude oil futures contracts for delivery between October 2018 and September 2019 were priced in descending order. The price pattern is positive for ETFs that follow US crude oil futures like the ProShares Ultra Bloomberg Crude Oil ETF (UCO) and the United States 12-Month Oil ETF (USL).

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