The severe physical shortage in oil markets and uncertainty over what might happen next in the Iran War has caused disruption over oil futures, with the price of a physical barrel of oil being significantly higher than suggested prices in financial markets.
The disconnect is especially stark for Brent, the international benchmark. Dated Brent, which reflects oil for actual physical delivery 10 to 30 days out, had risen to $132.74 a barrel as of April 13. Brent futures for the nearest delivery settled at $99.36 a barrel at that time. Brent futures don’t convert to physical delivery; they settle into an index price that is derived from the physical market at that time. (The front-month U.S. benchmark crude, West Texas Intermediate, settles physically.) The scramble by buyers to secure volumes to replace obstructed shipments that would have come through the Strait of Hormuz is better represented in spot market prices than in futures contracts, which are pricing crude for later delivery.
According to longtime oil market consultant Gary Ross, CEO of New York-based advisors Black Gold Investors, both the degree of uncertainty and the size of the price gap are unprecedented.
Under normal market conditions, the spread between the Dated Brent spot price and the front-month Brent futures price is narrow and tends to be positive, which reflects that a barrel of crude oil now is more valuable than a barrel in two months. Typically, both prices move together on similar news and market developments.
Which Oil Price is the Right One?
The shortage in oil markets tends to amplify the spread between spot and futures prices. Front-month futures have become disconnected from the physical barrels both in timing and physical reality, notes Dave Ernsberger, president of S&P Global Energy. This means the futures price doesn’t necessarily converge with the spot price, Ernsberger says.
Both the overall world supply of oil and the world demand for oil will sooner or later determine the actual market price for oil, regardless of any administered pricing system. A price determined by OPEC can be maintained only so long as there is sufficient demand to absorb the amount being supplied in world markets. If demand exceeds supply, oil will be sold at an even higher price than that determined by OPEC, while the opposite holds true when an oil glut occurs.
The physical barrel price signals extreme immediate supply constraints, whereas the futures price reflects market optimism about future normalization. Due to physical shortages, logistical bottlenecks, and high insurance costs for some shipping routes, physical barrels delivered immediately or within 10 to 30 days were trading significantly higher as of April 2026, closer to $140 per barrel Meanwhile. the futures market for the nearest delivery trade—two months out—were trading closer to $100 per barrel.
The abnormally large gap between physical and futures prices indicates that the intense, immediate shortages caused by shipping bottlenecks and geopolitical tensions have not yet been priced in by the futures market. The severe physical shortage in oil markets tends to amplify the spread between spot prices and futures prices. In addition, oil price moves are so volatile that traders aren’t willing to place big bets in futures markets.
Sellers in the futures market include oil producers, who were relatively under-hedged before the conflict, locking in future prices, according to commodity trading expert Ilia Bouchouev, managing partner of New York-based energy derivatives specialists Pentathlon Investments.
Sellers also include traders who bought oil from the U.S. Strategic Petroleum Reserve (SPR). The SPR release is structured as a loan: For every barrel that a trader buys from the SPR, the trader must return about 1.2 barrels in the future. To hedge this, traders are selling oil futures for earlier delivery and buying futures for later delivery. Financial oil markets currently have a more balanced mix of buyers and sellers. In the physical market, there are obviously more buyers for oil than the sellers whose supply is stuck in the Middle East.
Oil price moves are so volatile that traders aren’t willing to place big bets in futures markets. Hedge funds and algorithmic traders have modest positions in oil futures, according to Bouchouev. Professional traders largely don’t expect the oil market to normalize by June, when the front-month Brent futures expire, Bouchouev says. But traders who hold that view aren’t willing to place big bets on it because the market is so volatile.
The risk is that big price swings can trigger margin calls. Bouchouev notes traders are measured on a risk-adjusted basis, so when volatility on an asset is too high, they tend to allocate less. Fast-growing options markets exaggerate the price moves in both directions.
Conclusion: The Future of Futures
Will the disconnect between spot prices and futures prices cause oil producers to underinvest? Not necessarily. Energy companies do look at further-out oil futures prices for planning.
But meanwhile, as Ross notes, energy firms will have to decide what to do with the windfall of cash from high spot prices. For some producers, that could mean allocating more cash to drilling.
For investors looking for clues on what energy prices will look like in the future, it might be better to keep a close eye on the Strait of Hormuz rather than financial markets.
For investors – a convergence of the per barrel oil prices of the spot (real Oil delivery) and the futures market (paper delivery in the future) can be a signal that the price of oil is beginning to settle. Investors begin to reset their models and begin to plan for less volatile longer-term pricing. This can be the first indication that things are settling down not withstanding any additional military actions in the immediate future. This entire affair has reminded investors that oil and gas are not just energy concerns but interwoven in all kinds of both industrial and consumer products. A stable environment allows for more supply chain planning and would produce a more normalized adjustment in the broader indexes. In short, things haven’t turned yet, but a narrowing price spread between the oil futures market and the oil spot market can be interpreted as a step back to a less volatile broader market. We will just have to adjust to wherever the oil prices settle out.
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