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Oil’s Bullishness Rises after Inventory Data Release

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Nov. 20 2020, Updated 2:59 p.m. ET

Futures spread

Yesterday, US crude oil March 2019 futures closed ~$2.07 below March 2020 futures. The spread was the same on January 16.

Market sentiment toward oil demand and supply is reflected in the futures spread. In the last four trading sessions, the spread’s discount and US crude oil prices have stayed the same. On January 24, the U.S. Energy Information Administration reported an 8-million-barrel rise in oil inventories, while a Reuters poll had estimated a fall of 0.04 million barrels. With inventories 9% above their five-year average, the discount contracted to $1.47 at 11:17 AM Eastern Time. A contraction is a bullish sign.

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Energy stocks

Between January 16 and 23, oil-weighted stocks Callon Petroleum (CPE), Concho Resources (CXO), and Hess (HES) fell 5.4%, 6.8%, and 0.4%, respectively. Oil price sentiment is important to these upstream energy stocks, as well as the broader-market S&P 500 Index (SPY) and Dow Jones Industrial Average (DIA).

Forward curve

Yesterday, US crude oil futures for delivery between March and December were priced in ascending order. The price pattern is a negative sign 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.

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