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Futures Spread: Sentiments Surrounding Oil Prices

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Nov. 20 2020, Updated 5:13 p.m. ET

Futures spread

On April 8, the US crude oil May 2019 futures closed ~$3.5 above the May 2020 futures. On April 1, the futures spread was at a premium of $1.7. On April 1–8, US crude oil May futures rose 4.6%.

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Rise in bullish sentiments

The market sentiment towards the oil demand and supply situation is reflected in the futures spread. In the last five trading sessions, the spread’s premium expanded. US crude oil prices rose by nearly five percentage points. The recent geopolitical crisis in Libya might have pushed the spread’s premium and oil prices up. If the spread’s premium expands more, it would signal more bullish sentiments for oil.

Energy stocks

On April 1–8, oil-weighted stocks Whiting Petroleum (WLL), California Resources (CRC), and Denbury Resources (DNR) rose 8.5%, 8.6%, and 18.3%, respectively, and outperformed their peers.

Forward curve

As of April 8, the US crude oil futures contracts for the next year were priced in descending order. The price pattern is a positive 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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