Oil’s Futures Spread: An Interesting Divergence



Futures spread

On December 31, US crude oil February 2019 futures closed ~$3.2 below the February 2020 futures. On December 24, the futures spread was at a discount of ~$3.1. On December 24–31, US crude oil February futures rose 6.8%.

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Interesting divergence

The market sentiment towards the oil demand and supply situation is reflected in the futures spread. Usually, an expansion in the discount will be accompanied by a fall in oil prices. In the last four trading sessions, the spread’s discount expanded and US crude oil prices rose by nearly seven percentage points.

The inventories are 7% above their five-year average, which might be behind the expansion in the discount. However, the OPEC and non-OPEC production cut deal and the recovery in US equity indexes might be boosting oil prices.

Energy stocks

On December 24–31, oil-weighted stocks Denbury Resources (DNR), Whiting Petroleum (WLL), and California Resources (CRC) rose 19.6%, 20.1%, and 22.4%, respectively, and outperformed their peers.

Forward curve

As of December 31, US crude oil futures contracts for delivery for the next year 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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