The premium for U.S. crude oil futures expiring next month over the following month's contract reached a record high on Thursday, as traders rushed to buy oil after President Trump vowed to continue targeting Iran.
This "inversion" structure indicates that traders anticipate tighter supply in the near term compared to the future. An inversion occurs when the price of a near-month delivery contract exceeds that of a later-month contract.
At one point during trading, the May delivery West Texas Intermediate (WTI) futures price was $16.70 per barrel higher than the June contract. The May contract hit a high of $113.97 per barrel during the session and settled at $111.42 per barrel.
Conflict in the Middle East has removed millions of barrels of crude oil per day from the global market, driving energy prices to multi-year highs and causing fuel shortages in countries reliant on the Strait of Hormuz, which is currently blocked.
In a speech Wednesday evening, President Trump pledged "very forceful" action against Iran in the coming weeks but did not outline a specific plan to reopen the strait. He has previously stated that other countries should take the lead in clearing the strait to ensure shipping lanes remain open.
While prices for near-term crude deliveries have surged significantly, prices for oil deliverable in six months and one year have also risen, though to a lesser extent. However, these price increases raise the possibility of producers restarting drilling operations.
The price for crude oil futures expiring in October is currently around $73.64, a 13% increase from pre-conflict levels in late February. This is a key metric companies use when deciding whether to increase drilling activity.
"Later this year, you might see some U.S. operators begin to drill and complete more wells," said Andy Hendricks, CEO of Patterson-UTI, one of the largest onshore drilling contractors in the U.S. "The current price movement isn't really the core driver for U.S. producers. You have to understand what the price will be six to nine months from now."
Energy services firm Baker Hughes reported on Thursday that the U.S. oil rig count increased by 2 this week to 411.
However, Dallas Fed President Lorie Logan stated on Thursday that U.S. oil producers are unlikely to boost output in the short term because they "need to be convinced that high prices will persist for a while." Logan said she has not yet heard "news of a significant near-term increase in production."
Bryan Sheffield, founder of private company Formentera Partners, noted that the price for crude oil deliverable in May 2027 is only around $68.43 per barrel, more than $40 lower than near-month futures, which is likely to cause drillers to hesitate.
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