Futures Spread: Less Bearish Sentiments for Oil Prices



Futures spread

On February 19, US crude oil April 2019 futures closed ~$1.9 below the April 2020 futures. On February 12, the futures spread was at a discount of ~$2.3. On February 12–19, US crude oil April futures rose 5.6%.

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Less bearish sentiments for oil

The market sentiment towards the oil demand and supply situation is reflected in the futures spread. A contraction in the discount is usually accompanied by a rise in oil prices. In the last four trading sessions, the spread’s discount contracted and US crude oil prices rose by nearly six percentage points. Last week, optimism surrounding the trade talks might have supported oil prices. If the gap between oil inventories and their five-year average contracts, there might be another contraction in the discount going forward.

Energy stocks

On February 12–19, oil-weighted stocks Carrizo Oil & Gas (CRZO), Denbury Resources (DNR), and California Resources (CRC) rose 8.2%, 17.3%, and 19%, respectively, and outperformed their peers.

Forward curve

As of February 19, the US crude oil futures contracts for April and November 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.


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