Oil futures are sending a clear signal: the market expects higher prices to persist—but not without uncertainty.
In the wake of disruptions in the Strait of Hormuz, near-term oil prices have surged as traders react to immediate supply constraints. With an estimated 10 million barrels per day affected, the shock has tightened global balances and pushed spot prices higher. But what’s more telling is what’s happening further out on the curve.
According to Scotia Capital, the futures curve remains elevated through 2026 and 2027, with West Texas Intermediate (WTI) priced above US$70 per barrel. That suggests markets aren’t just reacting to a short-term disruption—they’re building in a sustained geopolitical risk premium. BMO’s Randy Ollenberger noted that this premium could rise to around US$10 per barrel, up from roughly US$5 before the conflict.
However, not everyone is convinced that higher prices are locked in. Economists point out that oil markets have a history of overreacting to geopolitical shocks, only to reverse once conditions stabilize or demand weakens. As BMO’s Douglas Porter highlighted, even small changes in demand can quickly shift the balance and bring prices down.
The takeaway: oil futures are pricing in a tighter, riskier market over the next couple of years—but history suggests that outlook can change quickly.
Author: phinds
