Oil Futures Curve Displays Sharp Divergence as Geopolitics Weigh on Prices
The crude oil market is currently displaying a sharp divergence across its futures curve. Front-month WTI is trading near $102, while December 2026 is near $93 and February 2027 is around $85. This creates approximately $9 of backwardation between the front month and December, and more than $16 between the front month and February.
This structure indicates significant demand for immediate supply, but the deferred contracts are not fully confirming the front-month price. A similar divergence appeared earlier this year, where the front of the curve reacted aggressively to immediate supply concerns while longer-dated contracts remained anchored to expectations for eventual normalization. Oil subsequently moved lower as the temporary premium unwound.
The current situation has some similarities. Geopolitical disruptions and constrained Middle Eastern exports are supporting near-term prices. However, the back of the curve continues to suggest that the market expects supply conditions to improve or demand to weaken over time.