You have no clue where oil goes next. Neither do I.
Anybody telling you different is guessing, because you could get Hormuz at any point and I don’t care if US carriers are escorting ships through there. Ain’t gonna make a difference.
So stop having an opinion and go look at what people are paying right now.
October crude is $91 and March of 2027 is $78.
Both are real prices trading right now. Same barrel, same commodity, thirteen dollars apart depending on when you want it delivered.
That gap is the forecast, and it costs you nothing to read.
What the gap is telling you
Oil’s in backwardation, which is what it’s called when the near contracts cost more than the far ones.
It happens because somebody needs the barrel now and will pay up for it. Supply’s tight, or people think it’s about to get tight, so today’s oil is worth more than winter’s oil.
And right there in that thirteen dollars is what the market thinks about the conflict.
It thinks it resolves. Not fast and not all the way, but it resolves, because you don’t price thirteen dollars off if you expect this thing to stay hot.
You also don’t price only thirteen dollars off if you expect it to end tomorrow. The size of the spread is the size of the conviction, and thirteen bucks is somebody hedging their bets.
Why that beats an opinion
Say you use oil and you don’t need a barrel this week.
You’re not paying $91. You go out the curve, buy March at $78, and you’ve technically bought $78 oil.
Maybe you look like an idiot when it’s $60 by then, and maybe you look brilliant. Either way you got there by reading what people are paying instead of guessing at a chart, and that’s available to anybody who bothers to look past the front month.
What I’m doing with it
Nothing in the energy equities, and that’s not like me.
I trade a lot in that complex and I’ve done well there. But I’m on the sideline with XLE, and it’s not because I’m scared of the geopolitics.
It’s because energy stocks can sell off with oil going higher.
That’s demand destruction. The price gets high enough that people go screw it, I’m not driving anywhere this weekend, and then the barrel is expensive right up until nobody wants it.
Could you get $110 oil if this gets hot again? Hell yeah you could. I still don’t want my neck out purely on a headline nobody can forecast, so I go read the curve instead.
One more for you regardless of what you trade. Diesel is at record prices right now, and that’s inflation you can’t get away from, because everything you own rode on a truck to get to you.
Reading that curve, the skew, and what volatility is telling you about next month is most of what I do.
I’ve put 97 sessions on it into one bundle and it’s open this Labor Day weekend.
→ Show me the volatility bundle
To your success,
Don Kaufman
P.S. The obvious pushback here is that you don’t trade futures, so what good is a curve to you.
Plenty. The curve tells you what the market expects, and once you know that you can go check whether the equities are priced for the same thing. Most of the time they aren’t, and that gap is where the trade lives.
