Our chart this week shows futures based prices for the West Texas Intermediate (WTI) forward curve. One year ago (red line) the curve was as flat as can be. Two geopolitical events happened in the past year that changed the longer-term price expectation. The regime change in Venezuela and the current War in Iran. Both have the possibility to be significant supply swing producers in the oil market. They have both been significantly underperforming compared to the maximum output potential. The blue line was the forward curve on Feb 27th, the close before the Iran attack.
We can see that the Venezuela event caused a decline in forward prices in 2034 and beyond with the belief that it could take five years or more for the infrastructure to be modernized and rebuilt in Venezuela to ramp up production.
The white line is the current forward curve and the massive supply disruption in the Strait of Hormuz. It has clearly lifted the forward price for the next few years, but not in a material way (10 per cent) from where it was the day of the U.S. election in 2024 where Trump’s pump baby pump rhetoric started to push longer-term prices lower (purple line) despite the anti-clean energy policies that would naturally see more green vehicle use.
While the current Iran war is a TBD in terms of how it will play out, the market is betting that supply issues will persist for a while longer (a few years). That seems to change by the hour based on the latest social media post from the White House.
To answer our question, the long-term outlook is NOT bullish for crude Oil. We would be using the current strength to reduce exposure. There will be other trades to buy the market to be sure as policies change in the months and years ahead, but the long-term view seems clear:
Be a trader, not an investor!
