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Futures Spread: OPEC’s Deal Might Not Impact Oil

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Nov. 20 2020, Updated 2:11 p.m. ET

Futures spread

On December 17, US crude oil February 2019 futures closed ~$2.5 below the February 2020 futures. On December 10, the futures spread was at a discount of ~$1.4. On December 10–17, US crude oil February futures fell 2%.

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Bearish sentiments

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 last five trading sessions, the spread’s discount expanded and US crude oil prices fell by two percentage points.

The OPEC and non-OPEC oil producer production cut deal might not have helped reduce oil’s bearish sentiments much. In fact, inventories being 7% above their five-year average, which we discussed in the previous part, and economic slowdown concerns could be dragging oil prices down.

Energy stocks

On December 10–17, oil-weighted stocks Callon Petroleum (CPE), Oasis Petroleum (OAS), and Carrizo Oil & Gas (CRZO) fell 10.4%, 11.8%, and 15.7%, respectively, and underperformed their peers.

Forward curve

As of December 17, US crude oil futures contracts for delivery between February 2019 and June 2020 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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