The goal of this example is to provide our readers with some important fundamental and technical trends in commodity markets.
July 29, 2019 | by Joel Fingerman, Ph.D.
The December Crude Oil futures contract is heavily traded. The difference between the current year December contract and the next year December contract is often referred to as the “Dec Red Dec” calendar spread. It is a good measure of the structure of the forward curve and potential direction of prices. Chart 1 (black line) shows the current Dec Red Dec calendar spread between December 2019 and December 2020 to be at $2.14. With the exception of 2017-2018 (blue line), the calendar spread has decreased by $1 to as much as $5 into the expiration in November. So a trader would consider a short position by selling the 2019 December contract and buying the 2020 December contract.
The Fundamental Analytics Team