Has there been a change in pre-war Brent oil price future curve data compared with post-war Brent data? And if so, what does this change show and suggest?
These were the questions Rigzone posed to a range of analysts in the wake of the Iran conflict, which saw the Brent oil price rise from a close of $70.75 per barrel on February 26 to a close of $112.19 per barrel on March 20.
In response, Janiv Shah, Vice President Commodity Markets – Oil at Rystad Energy, told Rigzone that “the change has been significant as pre-war’s curve showed a narrow M1-M3 backwardation and the potential to flip to contango with the impending oversupply in the global market, coupled with a flattening of the curve and contango in early 2028”.
“This is compared with the current curve showing a strong backwardation throughout the time period until beyond 2033, based on the challenge on prompt barrel supply and availability as the market is scrambling for crude barrels in all geographies,” Shah added.
“This means the market is assuming an elongated disruption across all benchmarks,” Shah continued.
Alan Gelder – SVP Refining, Chemicals & Oil Markets at Wood Mackenzie – told Rigzone that, a month ago, the oil futures curves were “reasonably flat”.
“Forward prices showed some backwardation out across the next few months and then the curve was broadly flat,” Gelder said.
“Since the Middle East conflict, the backwardation over the next few months is now much higher ($20 per barrel rather than $2-3 per barrel) and prices then decline from year one steadily until they match the prior curve beyond five years out,” he added.
Gelder noted that this change shows the prompt market is supply constrained as refiners compete for prompt supply.
“Commercial stockholders are incentivized to release all available inventory,” he highlighted.
“It also suggests the market is acknowledging that significant volumes have been lost from the market but that the impact of the conflict does not extend into 2027,” he added.
“Producers entered the crisis at relatively low hedging rates as indicated by the ICE Brent Commitment of Traders data. Subsequent weeks have shown significant increases in the producer net short positions as prices became more attractive to hedge,” he continued.
Gelder went on to state that producer selling has limited the uplift in the long-dated futures price.
Standard Chartered Bank Energy Research Head Emily Ashford highlighted an “incredible transformation in the forward curve from pre-war to the current shape”.
“Three months ago … the overwhelming media narrative was of bearish oversupply, an oil-on-water deluge ready to swamp onshore inventories, and large supply-demand imbalances,” Ashford told Rigzone.
“The forward curve reflected this sentiment, with a flat to contango profile, and the back of the curve anchored at around $68 per barrel,” Ashford added.
Outlining what the forward curve shows today, the Standard Chartered Bank analyst pointed out that “backwardation extends fully along the curve, with front month prices in extremely steep backwardation, and the back anchored around $70 per barrel”.
“The steep backwardation that extends through c.6m, shows that the market is pricing in tightness in supply for this time period. If there was notable concern about prolonged supply shortages, we would expect to see further dated contracts moving higher,” Ashford highlighted.
“When the curve starts moving up in the longer-dated contracts, that is when we can assume the market is expecting longer disruptions, but for now, the price moves and activity is focused in the first 3-4 contracts,” Ashford went on to state.
Al Salazar, Director at Enverus subsidiary Enverus Intelligence Research (EIR) highlighted to Rigzone that, pre-war, the Brent forward curve was in the $60s for 2026 and now it’s in the $80s.
“Furthermore, the backwardation is much steeper,” he pointed out.
Salazar outlined to Rigzone that the shape of the curve suggests there is a near-term shortage of barrels as there is no forward incentive to store oil.
Looking at the back end of the curve, Salazar said “higher prices show potential slowing of hedging programs and/or less confidence that the balances will correct to prewar conditions due to flow outages/low stocks”.
In a comment sent to Rigzone on Wednesday, David Leevan, President of Zema Global, noted that, at CERAWeek, which is taking place from March 23-27 in Houston, Texas, “discussions are highlighting the widening gap between physical disruption and the rate at which markets are able to price it in”.
“The prolonged closure of the Strait of Hormuz has taken a meaningful share of global oil and LNG flows out of the system, but the full effects are still unfolding, which creates risks for market participants,” Leevan said.
“In this period of extreme uncertainty and volatility, the ability to maintain a clear view of risk, dynamically analyze emerging scenarios, and act quickly becomes a competitive advantage,” he continued.
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