Khaberni - U.S. crude oil futures for immediate delivery next month reached their highest-ever premium compared to next month's contract on Thursday, as traders rushed to procure oil after President Donald Trump vowed to continue attacks on Iran.
This phenomenon is called "backwardation" and occurs when spot delivery contracts are traded at a premium over contracts scheduled for delivery in a later month, indicating investor expectations of short-term supply shortages. Future contract prices are usually higher than spot market prices due to storage costs.
West Texas Intermediate crude futures for May delivery rose up to $16.70 per barrel over the June contract during the trading session. The contract hit a session high of $113.97 per barrel on Thursday before settling at $111.42.
The US-Israeli war with Iran, nearing the end of its fifth week, has removed millions of barrels of oil per day from the global market, pushing energy prices to their highest levels in several years and leading to fuel shortages in countries dependent on oil and gas flow through the Strait of Hormuz.
About 20% of the world's oil passes through this vital passage. Trump, in his speech on Wednesday evening, vowed to hit Iran "very hard" in the next two to three weeks, but did not outline a plan to open the Strait of Hormuz. In recent days, he has suggested that other countries take the lead in facilitating maritime navigation in the strait.
While spot oil prices have seen a sharp rise, prices for oil delivery in six months and a year have also increased, albeit at a less intense pace. However, the rise in prices increases the likelihood of producers restarting drilling rigs.
Oil for delivery in October, a key indicator for companies deciding to increase drilling operations, is trading at about $73.64, up 13% from its price before the war began in late February.
Andy Hendricks, CEO of Patterson-UTI, one of the largest land drilling companies in the United States, said, "We are likely to see some American oil companies begin drilling and completing more wells later this year."
He added, "What is happening today in oil prices is not the real driver of the American market. We need to know the oil price over the next six to nine months."
Reuters
