US-Iran Tension Shifted US Crude Oil’s Forward Curve

Forward curve

As of June 24, the US crude oil futures contracts between August and September are priced in ascending order. After September, US crude oil active futures are priced in descending order for the next year. Rising tension in the Middle East has increased the demand for front-month futures contracts. The change in the price pattern is a positive 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).

US-Iran Tension Shifted US Crude Oil’s Forward Curve

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.

Bullish sentiments rising

On June 24, the US crude oil August 2019 futures closed ~$2.48 above the August 2020 futures. On June 17, the futures spread was at a premium of $0.57. On June 17–24, US crude oil August futures rose 11%.

The market sentiment for oil supply and demand is reflected in the futures spread. Usually, the future spread and prices move in the same direction. During the last five trading sessions, the spread’s premium rose significantly with a double-digit rise in prices. US-Iran tensions and the lower inventories spread might have lifted oil’s bullish sentiments.