Futures Spread: Divergence Is Important for Oil Traders



Futures spread

On December 3, US crude oil January 2019 futures closed ~$1.12 below the January 2020 futures. On November 26, the futures spread was at a discount of ~$1.08. On November 28–December 3, US crude oil January futures rose 2.6%.

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Interesting divergence

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 slightly and US crude oil prices rose above two percentage points.

A possible OPEC and non-OPEC oil producer production cut deal might have helped oil prices to rise, while oversupply concerns might have kept a lid on the spread. Inventories at 7% above their five-year average might threaten any upside in oil prices, which we discussed in the previous part.

Energy stocks

On November 26–December 3, oil-weighted stocks Whiting Petroleum (WLL), WPX Energy (WPX), and Denbury Resources (DNR) rose 9.8%, 10.5%, and 11.1%, respectively, and underperformed their peers.

Forward curve

As of December 3, US crude oil futures contracts for delivery between January 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).


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