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Everyone’s talking about an oil price spike if stocks are depleted, but the heavy backwardation of crude oil futures tells a completely different story. Who is

by d4ng 4mo ago

Everyone’s talking about an oil price spike if stocks are depleted, but the heavy backwardation of crude oil futures tells a completely different story. Who is right? Are crude oil traders, who I’m sure know exactly how much remains in reserve, on Chinese fentanyl, or is something else going on? There was a press release by Exxon a couple of days ago with claims of prices hitting 150. People have been making similar claims for months, but it hasn’t happened. The forward curve has been backwardated for quite a while now. Is it Exxon doing a please buy our oil while it’s high, or is something else going on? Pray tell.

achierius 4mo ago
It's possible that oil traders are still trading on the assumption that the war will be over Soon™, in which case the expectation is that we won't hit the bottom of our stockpiles and thus there'd be no reason to price in that eventuality. I don't know if I agree with that, and I would certainly be surprised if traders generally thought as much -- but who knows!
- credit_guy 4mo ago
  No. If you read 2-3 articles about the war in Iran per day, be sure they read 20 or 30, and they probably use LLMs to summarize 3000. For us, it's only the feel-good of being smart. For them it's money.
  - achierius 4mo ago
    So? Maybe that extra information points them to believe that the war will be over soon, even if I don't agree. Isn't that what I said?
adjejmxbdjdn 4mo ago
There are other possibilities. - This is a situation they’ve never faced before. It’s hard to simulate and betting on high prices may not be a great bet. Especially given that oil futures aren’t like buying options. You actually have to take delivery. - They’re expecting a recession. - They don’t want to invest the money In aggregate that they’d have to in futures to raise the price above certain levels. - They suspect a lot of oil consumers will simply shut shop and end demand since those prices won’t be sustainable for many businesses. Airlines are already canceling flights. - They expect the blockades to end sooner rather than later.
- d4ng 4mo ago
  Options on crude oil futures settle in the underlying (futures), which settle in the underlying (oil) at expiry of the futures contract. Futures positions can be closed without giving or taking delivery. You give some interesting ideas to think about, however if we predict everyone shuts up shop in the future, then I don’t see near price of oil going to 150.
- vannevar 4mo ago
  There is another possibility: "they" are interested parties working to keep futures down as long as possible. When the space shuttle Columbia re-entered with a massive hole in its wing, the control systems kept it stable for quite awhile, until finally the vehicle went so far out of the control band that it could no longer compensate and it disintegrated. We may be seeing the same thing happen on a much larger system that is experiencing conditions outside of its operating history.
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dzonga 4mo ago
I would listen to commodity traders before politicians or anyone. Strategic stocks will get depleted - demand will remain high whether the strait opens up or not due to so much pent up demand.
AdieuToLogic 4mo ago
> Everyone’s talking about an oil price spike if stocks are depleted ... Oil prices are determined by expected future cost and are only influenced by national reserves in the short-term. > ... but the heavy backwardation of crude oil futures tells a completely different story. This assertion is belied by Brent oil prices since the beginning of 2026[0]. > There was a press release by Exxon a couple of days ago with claims of prices hitting 150. Again, referring to the cited Brent oil trading price[0], it has already hit 118 twice this year. > People have been making similar claims for months, but it hasn’t happened. The forward curve has been backwardated for quite a while now. This is demonstrably incorrect, as previously identified. 0 - https://markets.businessinsider.com/commodities/oil-price?op=1 https://markets.businessinsider.com/commodities/oil-price?op...
- d4ng 4mo ago
  Oil prices are indeed determined by the expected future cost, including expected future reserves, and not only current reserves. Futures expiries extend quite far. Where does your short term reserves claim come from? Genuinely interested. Regarding 118, this is about probability. Given we're at 96 and backwardated? What is the probability that we hit 150?
  - AdieuToLogic 4mo ago
    > Where does your short term reserves claim come from? Genuinely interested. Familial experience in one of the major US energy (oil) corporations headquartered in east Texas. > Regarding 118, this is about probability. Given we're at 96 and backwardated? The 118 peaks are separated by 4 weeks and the local minima of 92 from a week ago has already risen to almost 98 as of 6/3 close-of-business. This does not support a backwardation trend and, instead, could be reasonably identified as the beginning of another spike. > What is the probability that we hit 150? This is a question energy executives must answer. Fortunately, one did: The price of physical Brent oil cargoes will spike to $150 to $160 per barrel when inventories hit all-time lows in coming weeks, the executive said. “When the price gets to a certain level, demand destruction brings it back into balance,” he said.[0] 0 - https://www.cnbc.com/2026/05/28/oil-inventory-exxon-strait-hormuz-iran-war.html https://www.cnbc.com/2026/05/28/oil-inventory-exxon-strait-h...

by d4ng 4mo ago

achierius 4mo ago

It's possible that oil traders are still trading on the assumption that the war will be over Soon™, in which case the expectation is that we won't hit the bottom of our stockpiles and thus there'd be no reason to price in that eventuality. I don't know if I agree with that, and I would certainly be surprised if traders generally thought as much -- but who knows!

credit_guy 4mo ago
No. If you read 2-3 articles about the war in Iran per day, be sure they read 20 or 30, and they probably use LLMs to summarize 3000. For us, it's only the feel-good of being smart. For them it's money.
- achierius 4mo ago
  So? Maybe that extra information points them to believe that the war will be over soon, even if I don't agree. Isn't that what I said?

adjejmxbdjdn 4mo ago

There are other possibilities. - This is a situation they’ve never faced before. It’s hard to simulate and betting on high prices may not be a great bet. Especially given that oil futures aren’t like buying options. You actually have to take delivery. - They’re expecting a recession. - They don’t want to invest the money In aggregate that they’d have to in futures to raise the price above certain levels. - They suspect a lot of oil consumers will simply shut shop and end demand since those prices won’t be sustainable for many businesses. Airlines are already canceling flights. - They expect the blockades to end sooner rather than later.

d4ng 4mo ago
Options on crude oil futures settle in the underlying (futures), which settle in the underlying (oil) at expiry of the futures contract. Futures positions can be closed without giving or taking delivery. You give some interesting ideas to think about, however if we predict everyone shuts up shop in the future, then I don’t see near price of oil going to 150.
vannevar 4mo ago
There is another possibility: "they" are interested parties working to keep futures down as long as possible. When the space shuttle Columbia re-entered with a massive hole in its wing, the control systems kept it stable for quite awhile, until finally the vehicle went so far out of the control band that it could no longer compensate and it disintegrated. We may be seeing the same thing happen on a much larger system that is experiencing conditions outside of its operating history.

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dzonga 4mo ago

I would listen to commodity traders before politicians or anyone. Strategic stocks will get depleted - demand will remain high whether the strait opens up or not due to so much pent up demand.

AdieuToLogic 4mo ago

> Everyone’s talking about an oil price spike if stocks are depleted ... Oil prices are determined by expected future cost and are only influenced by national reserves in the short-term. > ... but the heavy backwardation of crude oil futures tells a completely different story. This assertion is belied by Brent oil prices since the beginning of 2026[0]. > There was a press release by Exxon a couple of days ago with claims of prices hitting 150. Again, referring to the cited Brent oil trading price[0], it has already hit 118 twice this year. > People have been making similar claims for months, but it hasn’t happened. The forward curve has been backwardated for quite a while now. This is demonstrably incorrect, as previously identified. 0 - https://markets.businessinsider.com/commodities/oil-price?op=1 https://markets.businessinsider.com/commodities/oil-price?op...

d4ng 4mo ago
Oil prices are indeed determined by the expected future cost, including expected future reserves, and not only current reserves. Futures expiries extend quite far. Where does your short term reserves claim come from? Genuinely interested. Regarding 118, this is about probability. Given we're at 96 and backwardated? What is the probability that we hit 150?
- AdieuToLogic 4mo ago
  > Where does your short term reserves claim come from? Genuinely interested. Familial experience in one of the major US energy (oil) corporations headquartered in east Texas. > Regarding 118, this is about probability. Given we're at 96 and backwardated? The 118 peaks are separated by 4 weeks and the local minima of 92 from a week ago has already risen to almost 98 as of 6/3 close-of-business. This does not support a backwardation trend and, instead, could be reasonably identified as the beginning of another spike. > What is the probability that we hit 150? This is a question energy executives must answer. Fortunately, one did: The price of physical Brent oil cargoes will spike to $150 to $160 per barrel when inventories hit all-time lows in coming weeks, the executive said. “When the price gets to a certain level, demand destruction brings it back into balance,” he said.[0] 0 - https://www.cnbc.com/2026/05/28/oil-inventory-exxon-strait-hormuz-iran-war.html https://www.cnbc.com/2026/05/28/oil-inventory-exxon-strait-h...