Oil prices dip, but the futures market still says “shortage now”

What happened

Oil fell for a second day. Brent crude for December delivery traded at about $115 a barrel on the morning of 27 October in Singapore, down from just under $117 at the end of last week, which had been a six-month high. Officials from Saudi Arabia, Pakistan and Turkey held talks in Tehran on 26 October, and traders read the diplomacy as lowering the risk of a wider war.

One number moved the other way. The prompt spread, the price of the nearest Brent contract minus the price of the next one, rose to about $5 a barrel on 26 October, from $3.69 a week earlier, according to Bloomberg. MUFG Research said a spread that wide sits in the top 1% of readings since 1990.

Brent is still about 87% higher than at the end of 2025, when it was near $61, according to official US price data.

Why oil for today costs more than oil for later

Oil trades in futures contracts: agreements to buy a set amount at an agreed price for delivery in a given month. Line up the prices for each month and you get the futures curve.

Normally the curve slopes upwards. Oil for later costs a little more than oil for now, because someone has to pay to store it until then. This is called contango.

When supply is tight, the curve flips. Refiners and traders who need crude now will pay extra to get it now rather than wait. Nobody wants to store oil for later when it can be sold today at a premium. The near month rises above the next ones, and the curve slopes down. This is backwardation.

So the two numbers answer different questions. The price level reflects what traders expect, including the chance of a deal or an escalation. The spread reflects the physical market today: how many barrels are available, and how much is in storage.

Why the spread is widening

Gulf crude flows have recovered close to pre-war levels, with US naval escorts through the Strait of Hormuz. But shipping is still expensive, so barrels take longer and cost more to reach buyers. Fuel stocks are also thin: MUFG estimates product inventories in the Amsterdam–Rotterdam–Antwerp hub at about 77% of their five-year average, and in Singapore at about 88%.

Timing adds to it. The December Brent contract expires at the end of this week, and buyers who need physical cargoes have to settle up before then.

Where it sits in the chain

This is the external shock at the start of the chain. A price fall would normally ease the pressure on inflation, Link 1. Steep backwardation says the shortage of physical oil has not eased yet, so fuel and transport costs that feed into consumer prices may stay high even while headline futures prices dip.

What to watch

• The expiry of the December Brent contract on 30 October, and whether the spread narrows once it rolls off.
• The Israeli election on 27 October and the US midterm elections on 3 November, which traders see as possible turning points for the conflict.
• Fuel inventories in Europe and Asia over the coming weeks.