Something funny’s been happening with the crude oil price curve. It’s in what we call “backwardation,” meaning the price of oil in the future is lower than it is today.
That’s not really how futures markets are supposed to work. Under normal conditions, the price of a future contract is generally greater because there are extra costs associated with storing and carrying commodities, like crude oil.
The key word in the term “backwardation” is — you guessed it — backward, said Tom Seng, a finance professor with Texas Christian University.
“You have a market that’s backwards,” he said. “The prices in the near months, let’s say that in the next 90 days, those prices are higher, and then we see prices fall off every single month after that.”
So if you put prices of oil on a chart?
“They would be declining. You’d see this curve going lower, and lower, and lower, and lower, lower, lower as we move out,” Seng said.
The price of crude oil in December 2025, for instance, is $3 less than it is today. It boils down to the balance of current and future supply and demand — factors like what OPEC and other major producers are planning.
“The U.S. will probably continue to grow oil production, maybe at a slower pace than in previous years,” said Denton Cinquegrana, and analyst with OPIS.
He said today’s backwardation actually reflects politics — geopolitics — threatening supply.
“The world is obviously a dangerous place, so we’re not quite sure what’s going to happen next,” he said.
Andrew O’Conor, a corporate credit analyst with Morningstar, points to war in the Middle East.
“When the fear of escalation was reaching a crescendo, after the first Iranian missile barrage on Israel … the futures curve shifted higher and steepened because there was a fear of a shortage today, therefore the spot price was bid higher,” he said.
He said these and other tensions are driving today’s backwardation.
“Because there’s this threat of escalation of ongoing conflicts, and then there would be fear of a disruption that is associated with that, OK, that is tending to cause the spot price to be bid higher,” he said.
But he said even so, that down-sloping oil futures curve has actually been flattening. Crude oil is still finding a way to market despite global unrest.
