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Oil futures spread and time skew (SKEW) analysis shows a bullish outlook for oil prices as
traders reflect expectations of falling inventories.
The premium of front-month WTI futures over the next delivery contract is testing a three-year high, highlighting the tight
supply in the market.
This happens in October, a month when spreads typically narrow
due to seasonal inventory build-up in Cushing, Oklahoma, a storage center.
In percentage points, the premium was the largest since 2011, when the Cushing neighborhood hit a traffic bottleneck and WTI rose more than 17 percent
that month.
Last week, the spread between put and call options, also known as skew, fell below zero
for the first time since 2019.
The skewed downside suggests that oil traders are more willing to pay price insurance
for big gains rather than big falls.
There is an inverse correlation between skew and oil prices, with a daily average of 0.
3
in the 120 days ending Monday.
