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The Oil’s Futures Spread’s Impact on Energy ETFs

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Forward curve

As of May 13, US crude oil futures contracts until August are priced in ascending order. The 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).

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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 have an impact these ETFs returns. UCO’s actual and expected returns could also differ due to daily price changes.

Fall in bullish sentiment

On May 13, US crude oil June 2019 futures closed ~$2.2 above the June 2020 futures. On May 6, the futures spread was at a premium of $2.5. On May 6–13, US crude oil June futures fell 1.9%.

Market sentiment for oil supply and demand reflects in the futures spread. Over the last five trading sessions, the spread’s premium has contracted. US crude oil prices have fallen by nearly two percentage points. The increase in tariffs against each other by both the United States and China might have dragged oil prices down.

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