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Futures Spread: Oil’s Bullish Sentiments is on the Edge

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Jun. 4 2019, Published 6:30 a.m. ET

Forward curve

As of June 3, the US crude oil futures contracts leading up to September 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).

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 impact 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 June 3, the US crude oil July 2019 futures closed ~$0.96 above the July 2020 futures. On May 24, the futures spread was at a premium of $1.96. On May 24–June 3, US crude oil July futures fell 9.2%.

The market sentiment for oil supply and demand is reflected in the futures spread. During the last five trading sessions, the spread’s premium has contracted. US crude oil prices have fallen by more than nine percentage points. The decrease in the International Energy Agency’s demand growth forecast for 2019 and the expectation of a rise in the oil rig count might have dragged oil’s futures spread and prices. If the prices fall more, the futures spread might shift to a discount and make oil’s bullish sentiments bearish.

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