Oil Futures Enter Backwardation After U.S.-Israeli Strikes on Iran

Oil futures traded in backwardation nearly three months into the U.S.-Israeli conflict with Iran, according to the Federal Reserve Bank of Minneapolis. The structure shows contracts for immediate delivery priced above those for later months. Minneapolis Fed Economist Neil Mehrotra said longer-term futures offered limited comfort because current market conditions remain tight.

He noted that participants are pulling oil from storage rather than adding to it.

The Department of Energy announced in March that the U.S. released 172 million barrels of crude oil from the Strategic Petroleum Reserve. The release formed part of a larger international effort totaling 400 million barrels. Commercial oil inventories held only a few weeks of supply, according to statements from the International Energy Administration reported on May 18.

Brent crude for immediate delivery recently traded at $102.50 per barrel, while the March 2027 contract stood at $81.39.

Research for the week ended May 15 showed a widening split between commercial traders and speculators. Commercial traders maintained a bullish position while speculators leaned pessimistic. Mehrotra added that volatility has complicated price discovery for longer-dated contracts. The futures curve continues to signal immediate supply pressure rather than expectations of future surplus.