Re: Oil-The Significance of Backwardation.

It’s not the current price of forward prices that determines future spot prices, but rather it’s the SHAPE of the forward curve.

With the curve backwardated $9 to ’23, history predicts that more often than not, much higher spot prices will follow.

Spent the day looking at historical contango-to-backwardation flips, and in 7 out of 11 such scenarios since 1988, spot prices were significantly higher in the following year.

Notably, in the 4 scenarios where prices went DOWN, they were all explainable by exogenous demand shocks: 1) end of Gulf War in 1991, 2) Russian crisis in 1998, 3) Iranian waiver rug-pull by Trump in 2018, 4) COVID demand collapse in 2020. Amazing.

Also had a call with a commodity strategist who thinks that the monetary debasement thesis around USD only accounts for 20% of the bullish commodity thesis. The other 80% is part of the much bigger commodity super cycle supply destruction thesis.

Re: Crude Oil-Stimulus Disproportionately Benefits Commodities. I got this chart from Capital One’s excellent oil analyst Lakshmi Sreekumar which illustrates Maslow’s Hierarchy in action. She estimates that the spending by the lowest quintiles is 60% on commodities.

End of week scorecard: Spot WTI just shy of $60 with Midland bbls pricing above $61. >$10 backwardation to ‘23. Impressive. Most impressive.

...and Black Gold is off to the races, opening at $60.60, widening to a $11 backwardation to Dec ‘23. (Much nuttier is WAHA gas blowing out to $100 — beat

that, GME!)

Real-time visual of backwardation dragging the entire curve up. Upper curve is now. Lower curve is beginning-of-year.

Speaking of other predictive indicators for oil, this spread, esoteric as it is, has historically been another leading indicator for Brent prices.