Backwardation

When assessing the impact of the Iran war on financial markets, investors naturally focus on the spot oil price. But the more informative indicator is often the oil forward curve.

Today’s graph compares the forward curve three months ago with today. While near-term oil prices have risen sharply, prices for delivery further out have moved much less. The curve remains in backwardation, meaning oil for delivery in 12 months is cheaper than oil today.

In other words, the market is pricing a short-term shock rather than a lasting structural oil crisis. Oil traders do not seem to believe that the current escalation will keep prices at extreme levels for very long, but rather that some form of stabilization or ceasefire will eventually emerge.

This distinction matters for investors. Short-term volatility can be severe, but the futures market is not currently signalling a prolonged oil shock.