The Oil Market Is Driving Everything
In today's interconnected commodity landscape, crude oil has become the singular force driving nearly every asset class. Grains, meats, metals, equities, treasuries, currencies — they are all, in effect, trading oil. Consider that wheat currently trades with an 85% correlation to crude oil, meaning that 85% of the time, wheat moves in lockstep with oil prices. This is an unusual environment by any standard. If you are trading anything in the world right now, you are indirectly trading oil.
Historical Parallels and the Case for a Top
Looking at long-term charts going back to 2008 and 2022, a familiar pattern is emerging. Crude oil has climbed to the top of its 20-year trading range, and history suggests that these spikes eventually exhaust themselves. Oil is fundamentally a feast-or-famine, supply-glut-driven market. Every time prices surge to extreme levels, new supply comes online and pushes prices to levels nobody anticipates — $20s and $30s per barrel are not impossible further down the road.
The seasonal dynamics reinforce this view. The seasonal high for oil typically arrives in mid-April. Many of the largest volatility events occur in March and April, and then the momentum simply runs out of gas. The 2020 bottom followed exactly this template: an initial sell-off in March, a retest that made new lows, and a final bottom in April that marked the end of the trend. By mid-April, this current bull market in crude may have run its course. Prices might creep above $100 or even reach $110 on the front months, but in the bigger picture, oil looks like a better sell than a buy.
What the Futures Curve Is Telling Us
The crude oil market is currently in backwardation — front-month contracts trade at significantly higher prices than contracts further out on the curve. Old-school commodity textbooks treat backwardation as bullish, reasoning that it lures buyers into the back months and gradually pulls those prices up to match the front. But modern trading tells a different story.
In 2022, backwardation actually proved to be a bearish signal. Most of the speculative activity was concentrated in the front months, while the back end of the curve — populated by hedgers with longer-term outlooks and cooler heads — remained more stable. This ultimately signaled that the panic-driven rally was temporary. As more information emerged and the initial shock subsided, the market found its equilibrium at lower levels.
The same dynamic may be playing out now. While today's geopolitical concerns are real and complex, the back end of the curve suggests that the market's longer-term participants view the current disruption as solvable.
Supply Is Coming Online
Despite the headlines about infrastructure damage and supply disruptions, several important supply-side developments are unfolding. Oil continues to move through contested chokepoints — slowly, and primarily to India and China — but it is not fully blocked. The flow is being managed, not stopped.
Meanwhile, new supply sources are materializing. Venezuelan oil production is gradually ramping up, with estimates ranging from 200,000 barrels per day in the near term to potentially 500,000–700,000 barrels per day by 2027. OPEC has pledged an additional 200,000 barrels per day. These are meaningful additions to global supply.
The market may be overreacting, pricing in more disruption than is actually occurring. Even accounting for all the infrastructure damage making headlines, the net supply picture is improving. Humans are resourceful — they know what they need, they know what they want, and they figure out how to get it even when obstacles arise.
The Imperfect but Possible Scenario
If we thread the needle — if disrupted flows resume, new supply comes online as projected, and geopolitical tensions ease rather than escalate — the world could emerge from this crisis with significantly more oil on the market than it had before the disruption began. Oil was trading at $55 per barrel before this run-up. In an optimistic but not impossible scenario, crude could return to a $30 or $40 handle by late this year or early next.
That outcome requires luck and favorable resolution on multiple fronts. It is far from guaranteed. But the presence of these shock absorbers — new supply sources, OPEC flexibility, continued albeit slow flows through contested routes — means that the current elevated prices are not destiny. The balancing act is precarious, and this remains a headline-driven market where day-to-day volatility will be intense. But the structural case for lower oil prices in the medium term is stronger than the current panic suggests.