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Future Spread: Oil Sentiments Changed

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Nov. 20 2020, Updated 4:18 p.m. ET

Futures spread

On March 18, the US crude oil May 2019 futures closed ~$0.24 above the May 2020 futures. On March 11, the futures spread was at a discount of $1.2. On March 11–18, US crude oil May futures rose 4%.

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Changing sentiments

The market sentiment towards the oil demand and supply situation is reflected in the futures spread. Usually, when the spread shifts from a discount to a premium, oil prices rise. The current shift in the spread suggests that the oil sentiments moved to the bullish zone.

In the last five trading sessions, the spread shifted from a discount to a premium. US crude oil prices rose 4%. The fall in the global oil supply and a contraction in the inventories spread might be behind the shifting sentiments.

Energy stocks

On March 11–18, oil-weighted stocks Oasis Petroleum (OAS), California Resources (CRC), and  Carrizo Oil & Gas (CRZO) rose 11%, 17.8%, and 18.9%, respectively, and outperformed their peers. The remaining oil-weighted stocks ended in the red.

Forward curve

As of March 18, the US crude oil futures contracts for May and October 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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