Futures Spread: Oil’s Bearish Sentiments Are Increasing

Futures spread

On November 12, US crude oil December futures closed ~$1.6 below the December 2019 futures. On November 5, the futures spread was at a discount of ~$0.55. On November 5–12, US crude oil December futures fell 5%.

Futures Spread: Oil’s Bearish Sentiments Are Increasing

Bearish sentiment for oil

The market sentiment towards the oil demand and supply situation is reflected in the futures spread. Usually, oil prices and the futures spread move in the same direction. In the past five trading sessions, the spread’s discount expanded, which might indicate a rise in the bearish sentiment for oil prices.

US crude oil prices have fallen by five percentage points. The factors that we discussed in Part 1 of this series could make oil prices fall more. Inventories at 3% above their five-year average might threaten any upside in oil prices, as we saw in the previous part.

Energy stocks

On November 5–12, oil-weighted stocks Oasis Petroleum (OAS), California Resources (CRC), and Denbury Resources (DNR) fell 14.5%, 16.5%, and 20.1%, respectively, and underperformed their peers.

Forward curve

As of November 5, US crude oil futures contracts for delivery between December 2018 and December 2019 were priced in ascending order. The price pattern is a negative sign 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).