On July 23, the front‑month WTI crude rose above $92 per barrel after attacks on Saudi oil tankers in the Red Sea and a near‑halt of traffic through the Strait of Hormuz. The incidents reduced Gulf shipments to 2.5 million barrels per day over the past week, down from an average of six million barrels per day in the prior month.
Prices have rebounded to June levels, yet the market’s primary concern now centers on the steady decline in strategic oil inventories held by major producers. This drawdown is reflected in futures pricing for upcoming months.
The September contract trades at a premium of $12.01 over the December contract and $18.12 over the May 2027 contract, indicating heightened worries about near‑term crude availability. The three‑month Brent spread widened to $9.26 per barrel, its largest level since May 22.
Backwardation describes the premium buyers pay to secure the earliest barrels, showing that refiners, traders and end‑users are willing to pay extra for immediate delivery. The September‑October spread of $5.11 signals that the market values crude available within the next few weeks more highly than contracts further out.
When the near‑term contract price exceeds later‑dated prices, the futures curve is in backwardation, implying that physical availability can provide greater economic benefit than financing or storage costs. Conversely, contango occurs when later contracts command higher prices, making storage profitable.
Supply disruptions stemming from the Middle East conflict extend beyond direct production losses; prolonged shipping delays, higher freight and insurance expenses, and cargo diversions continue to tighten the market. Even if hostilities cease, these logistical constraints could sustain price pressure as inventories remain constrained.
The duration of the crisis remains uncertain, but its ripple effects are evident in rising oil prices, broader inflationary pressures, and heightened interest in gold and silver markets. Analysts expect continued volatility until the supply chain normalizes.
