By Myra P. Saefong and Isabel Wang

Backwardation in WTI futures suggest traders expect a ‘sooner-than-later’ Iran war resolution, says analyst

Iran asserted that there have been no direct talks with Washington.

Oil futures were soaring again on Thursday, with U.S. oil taking the price lead over global oil for the first time in almost four years, after President Donald Trump said the U.S. will hit Iran “extremely hard” in the coming weeks.

That fueled concerns about broader disruption in the global energy sector, even as Trump, during his address to the nation Wednesday evening, also provided assurances that the U.S. has nothing to worry about regarding oil and doesn’t need Middle East oil.

U.S. crude production is currently at around 13.6 million barrels per day and that’s a full 3 million barrels below the amount of oil the nation’s refineries process each day, said Tyler Richey, editor of Sevens Report Technicals. The “math doesn’t work,” he said.

Factoring in the 6.5 million barrels per day of oil imported from Canada makes a better “domestic oil independence case,” he said, but the U.S.’ aging oil-refinery system has been geared toward refining heavy crude oil imported from the Middle East since the mid-1990s – not the “mostly light, sweet crude oil lifted from below U.S. soil.”

“Put simply, we lift the wrong kind of crude oil for our own system and rely on foreign buyers or swap deals to make things happen in the energy world,” Richey said.

June Brent crude (BRN00) (BRNM26) was up 7.2% at $108.41 a barrel as of 1:50 p.m. Eastern, after briefly dipping below $100 during the session. U.S. benchmark West Texas Intermediate crude for May delivery (CLK26) (CL.1) rose nearly 12% to $111.75 a barrel – trading above Brent for the first time since May 18, 2022, according to Dow Jones Market Data.

The WTI crude quote on the screen “inherently has a more immediate/pressing geopolitical-war premium priced in,” than the global June Brent contract, which recently became the front-month futures contract, said Richey. The June Brent contract has 30 extra days of “opportunity for [a] ceasefire” baked in.

That highlights a dynamic in WTI futures known as backwardation – a situation where current prices of oil are higher than prices of oil for later delivery.

It is clear that prices for contracts for delivery in months further out “rapidly compress back to a consensus ‘fair value’ target zone of roughly $67 a barrel, as you look out the duration curve towards the first half of 2027,” said Richey.

That tells us that the war and subsequent closure of the Strait of Hormuz is “viewed as being resolved sooner than later with physical market flows and seaborne oil logistics expected to normalize to pre-war levels” by late-2026 to early 2027, he said.

Still, Trump has offered mixed messages over the future of the conflict in the Middle East. In his address to the nation, he said the U.S. military operation in Iran was “very close” to concluding, while asserting that the plan is to “finish the job” and strike Iran “extremely hard” to bring the country “back to the stone ages.”

Even if the war ends, oil production can’t be quickly resumed and returned to normal because there’s been a lot of infrastructure damage, said Sasha Foss, energy analyst at CSC Commodities, a division of Marex. It’s “not like a light switch that you can turn on and off.”

There’s also an “elevated geopolitical risk premium of everyone fearing that Iran will control the strait for longer and they’ve shown that they can. It’s a pretty easy asymmetric war,” he told MarketWatch on Thursday.

“It’s like the toothpaste coming out of the tube – we can’t go back to normal now that Iran controls the strait,” said Foss.

Meanwhile, Esmail Baghaei, Iran’s Foreign Ministry spokesperson, said the Islamic republic “will not tolerate this vicious cycle of war, negotiations, cease-fire.” Tehran has repeatedly denied Trump’s claims that it has asked Washington for a cease-fire.

“Famously, uncertainty is kryptonite for the markets and between the contradictory messages from Trump, disputed claims on both sides, and the lack of clarity on a plan which can provide a resolution to the conflict they are getting a heavy dose of it right now,” Russ Mould, investment director at AJ Bell, wrote in a note on Thursday.

Trump’s signaling that the U.S. will intensify attacks over the next few weeks risks further damage to energy infrastructure, said Ryan Sweet, global chief economist at Oxford Economics.

Matched with a slower reopening of the Strait of Hormuz and declining supplies, it could lead to oil prices rising further by the end of the year as Sweet’s team keeps a $113 target on Brent crude for the second quarter, he said.

Nora Redmond contributed.

-Myra P. Saefong -Isabel Wang

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04-02-26 1403ET

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