Oil futures curve has formed a rare “smile” shape, a structure Morgan Stanley says was last seen briefly in February 2020 just before the infamous oil price crash. On Wednesday, Brent futures’ July contract was trading at a premium of 74 cents to the October contract, a market structure known as backwardation, foreshadowing immediate tight supply. However, prompt prices from November have formed a contango, with forward prices flipping to a discount, indicating oversupply as traders predict Trump’s tariffs will eventually weaken oil demand. Having backwardation and contango together leads to the rare “smile” shaped curve.
