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Futures Spread: Are Oil’s Bullish Sentiments Decreasing?

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May. 29 2019, Published 10:59 a.m. ET

Forward curve

As of May 28, the US crude oil futures contracts leading up to August are priced in ascending order. This price pattern is a negative sign for ETFs that follow US crude oil futures, including the ProShares Ultra Bloomberg Crude Oil ETF (UCO) and the United States 12 Month Oil ETF (USL).

USL holds US crude oil futures deliverable for each of the next 12 months. UCO tracks daily changes in the Bloomberg WTI Crude Oil Subindex. A negative roll yield, which occurs when expiring futures contract prices are lower than the following month’s futures contract prices, would likely affect these ETFs’ returns. UCO’s actual and expected returns could also differ due to daily price changes.

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Fall in bullish sentiment

On May 28, US crude oil July 2019 futures closed ~$1.63 above July 2020 futures. On May 21, the futures spread was at a premium of $2.9. On May 21–28, US crude oil July futures plunged 6.3%.

The market sentiment for oil supply and demand is reflected in the futures spread. Over the last five trading sessions, the spread’s premium has contracted. US crude oil prices have fallen more than six percentage points. The decrease in the International Energy Agency’s demand growth forecast for 2019 may have dragged on oil’s futures spread and prices.

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