Iran War Brings Severe Oil Futures Backwardation

[cliffside]

https://www.mcoscillator.com/learning_center/weekly_chart/iran_war_brings_severe_oil_futures_backwardation/

"The shutdown of shipping through the Strait of Hormuz into the Persian Gulf has understandably brought a big spike in the price of the near month crude oil futures contract. The contract for April 2026 delivery is now above $90. But if you go out 11 months to the March 2027 contract, the price is still at $66.50.

The condition of having the near month contract price above the far month contracts is known as "backwardation". The opposite condition is called "contango". Financial futures like T-Bonds and SP500 futures almost always trade in contango, with the more distant contracts at a higher price, thanks to something called the "time value of money". With the right portfolio engineering, a trader could go long the distant month and short the near month, thereby having a neutral position relative to the market, but collecting "interest" on the difference in contract premiums.

.... The big spread to the distant month contract prices also tells us that crude oil futures traders do not see the current panicked condition as being permanent. The distant month contracts have come up a little bit since the US-led invasion of Iran began, but that rise is not nearly as big as the near month.

.... The high backwardation spread we are seeing now is a topping condition, but it is not a "signal" to say that a top is in. Oversold or overbought conditions always have the potential get even more extended. But this current spread is an interesting bit of history, and a sign that this big spike in near month crude oil prices should not last very long."

[ret5hd]

1. that's a pretty optimistic take...

plausible but too rosy by my gut.

let’s hope he’s right (in the “correct” sense)

[cliffside]

2. Might be optimistic, a site showing the futures prices ...

https://oilprice.com/futures/wti/