Caissa Minute – Oil Markets
What the outcome of the war might do to energy costs and what the oil future markets are telling us.
Video Transcript
In this Caissa Minute, we explore what is happening in the oil markets.
One reasonable approach to assessing what the outcome of the war might do to energy costs is to consider what the oil future markets are telling us.
As of the close of last trading about a week ago, April WTI futures contracts were pricing in about $99 a barrel, while December 2026 contracts were pricing in about $76 a barrel, as indicated in this pricing chart here. If you chart that out though, all of the contracts out, you get this nice downward-sloping curve. This is the April contract, December contracts, and the pricing of each one of them.
Now, since we know that the countries bordering the Persian Gulf account for over 25% of the global oil production and half the world’s proven reserves, this downward-sloping futures curve must imply, then, that at least a majority of our traders expect some sort of stabilization to unfold in the weeks and months ahead to allow for the resumption of normal oil production and shipping.
But how we get there and how we get to the stabilization remains very much unseen.
So while this may represent the most probable endgame to the Iran war, there are obviously some really big tail risks embedded in unforeseen events and getting there.
Moreover, how long does it take to get there? That’s going to have a big impact on how this conflict affects the economy globally and around the world.
Caissa will be assessing these markets closely. Thank you for spending a minute with Caissa.