Oil has returned to the centre of global markets. Brent crude has risen above $100 per barrel, driven less by supply-demand fundamentals and more by geopolitical disruption.1 The catalyst is clear: escalating tensions involving Iran and the effective closure of the Strait of Hormuz, which is a chokepoint, through which roughly 20% of global oil supply flows.2

This is not a conventional price rally. The market is no longer pricing oil based on fundamentals. It is pricing risk.

A Market Driven by Risk, Not Fundamentals

Oil markets are uniquely sensitive to geopolitical shocks. Supply is highly concentrated among a small number of producers, while demand is extremely inelastic in the short run. When supply is threatened, price adjustment is violent.

In early March, crude surged above $120 before collapsing below $100 within days following signals of de-escalation.3 Such volatility reflects more than temporary disruption, it signals the presence of a geopolitical risk premium embedded in prices.

The key question is no longer whether supply is disrupted, but whether disruption persists.

Backwardation as a Signal of Short-Term Scarcity

One of the clearest indicators of current market conditions is the shape of the futures curve. Oil is trading in backwardation, where near-term prices exceed longer-dated contracts.

Backwardation reflects a willingness to pay a premium for immediate supply, signalling short-term scarcity driven by disruption rather than long-term structural shortage.4 It also incentivises inventory drawdowns, reinforcing perceptions of tightness.

Illustrative oil futures curve showing backwardation: near-term prices exceed longer-dated contracts. Source: Adapted from market data.

In current conditions, backwardation is driven by expectations of persistent geopolitical tension and limited spare capacity. However, this signal is fundamentally about uncertainty, not structural scarcity. If tensions ease, the curve may flatten or move into contango.

The Fragility of the Current Rally

Despite elevated prices, the medium-term outlook remains uncertain. Oil has already demonstrated how rapidly it can reverse.

A single statement from President Donald Trump regarding “productive talks” with Iran triggered a sharp selloff, contributing to a 10–11% price decline in a single session.5

This suggests that current prices are not anchored in long-term supply constraints, but in expectations about political developments. If flows through the Strait of Hormuz normalise, the embedded risk premium could unwind rapidly.

Insider Trading Concerns and Market Integrity

The most controversial development is not price volatility itself, but the trading activity surrounding it.

Approximately $500–$580 million in oil futures were traded minutes before Trump’s announcement that triggered a sharp price decline.6 This unusual timing has raised concerns about potential insider trading.

There is no confirmed evidence of wrongdoing. The White House has denied involvement, and analysts emphasise that causality is difficult to prove. However, the episode highlights a deeper issue: in markets driven by political decisions, information asymmetry becomes a source of profit.

Why This Matters

Oil sits at the intersection of inflation, growth, and financial markets. The current episode reveals three key dynamics:

The result is a market that is both volatile and fragile.

Oil today is not simply a reflection of supply and demand. It is a reflection of uncertainty.

Footnotes

  1. The Guardian, “Brent crude oil rises over $106 after Iran rejects Trump peace proposal”. ↩

  2. BBC, “Oil above $100 over conflicting claims on US-Iran talks”. ↩

  3. Reuters, “Oil surges to $120 before reversing on de-escalation signals”. ↩

  4. CNBC, “The oil market is in ‘backwardation’ — Here’s what that means for energy prices”. ↩

  5. New York Post, “Oil tumbles after Trump orders pause on Iran attacks”. ↩

  6. Reuters, “Traders bet $500 million on oil price before Trump announcement”. ↩