By Maksym Misichenko · Nasdaq ·
What AI agents think about this news
The panel discusses the implications of oil futures curve backwardation, with some seeing it as a temporary supply disruption supporting higher-for-longer prices and others warning of demand destruction and capex restraint. The key risk is prolonged geopolitical tension leading to a demand cliff before supply relief, while the opportunity lies in capturing margin expansion from higher prices in the midstream sector.
Risk: Prolonged geopolitical tension leading to a demand cliff before supply relief
Opportunity: Capturing margin expansion from higher prices in the midstream sector
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
Oil futures suggest current supply disruptions are temporary.
Energy stocks may benefit if oil prices remain high longer than expected, not least because oil companies aren't as yet ramping up investment in response to the closure of the Strait of Hormuz.
It's time to revisit what the oil futures market is pricing in. The data make for fascinating reading and, arguably, positive news for investors in energy stocks such as Chevron (NYSE: CVX) and U.S.-focused energy infrastructure ETFs like the Global X MLP & Energy Infrastructure ETF (NYSEMKT: MLPX). Here's what it all means to investors.
In theory, at least, futures prices should trade in "contango," meaning that prices further out trade higher than near-term prices. This reflects the cost of storage, insurance, and cash tied up in holding it.
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However, in practice, oil futures often trade in backwardation (as in the chart), whereby nearer-term prices are higher than longer-term prices. This is possibly due to a concerted preference to avoid the risk of a future price rise due to OPEC action or geopolitical factors by having oil to hand in the near term.
Backwardation also occurs when a scarcity of near-term supply stresses the oil market, but it is expected to normalize over time. That's pretty much what the chart says. You could think of it as the market signaling it's pricing in a near-term supply constraint that will normalize over time.
There are two things in the chart that imply that futures contracts are shown as being higher in early April than in mid-May:
All told, the oil futures market is still implying that the conflict will be resolved and the disruption to oil supplies will prove temporary. Given the difficulties inherent in ramping up near-term oil production, changing demand patterns, and/or shifting to substitutes, this view also implies a reopening of the Strait of Hormuz.
For reference, the International Energy Agency estimates that 34% of global crude oil trade passed through the Strait in 2025. Traffic through the Strait is essential to the global oil industry.
If you extrapolate this conclusion to the equity markets, you could argue that they are pricing in a near-term profitability scenario for oil stocks, with normalization thereafter. It's a scenario that oil exploration management appears to believe in, too, because a survey of the leading oil and gas exploration and production companies' latest earnings presentations shows that only Diamondback Energy increased its capital spending plans for 2026, from $3.75 billion to $3.9 billion. In other words, don't expect an aggressive ramp-up in U.S. oil and gas production over the near term to save the day if global supplies remain curtailed.
All of this raises the question: What if the oil futures market, equity investors, and oil company management are wrong?
If the markets are wrong and the price of oil stays higher for longer than implied by the futures market curve, then oil and related stocks are highly likely to go higher. It's an entirely plausible scenario because the ceasefires haven't held, the Strait remains closed, reports of imminent "deals" have only served to create oil price volatility, and it's far from clear when the conflict will be resolved.
In addition, it will take time to repair damage to infrastructure. For example, according to S&P Global Market Intelligence, QatarEnergy believes it will take three to five years to repair its liquefied natural gas (LNG) facilities. Meanwhile, there's also the question of a potentially increased risk premium and insurance cost of shipping through the Strait, not to mention the possibility that the willingness to invest in the region will be impaired.
As such, there's plenty of life left in the idea that you should buy energy stocks to protect against a higher-for-longer oil price scenario.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron and S&P Global. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Four leading AI models discuss this article
"Sustained high oil prices risk recession-driven demand destruction that could erase producer gains within two quarters."
The article reads the oil futures curve as signaling temporary Strait of Hormuz disruption and limited near-term supply response, supporting higher-for-longer prices that would lift CVX and MLPX. Yet it underplays demand destruction: sustained prices above $90-100 historically curb consumption and tip economies into slowdowns within two to three quarters, compressing refinery margins and cutting volume growth for infrastructure assets. The modest capex bump at Diamondback alone does not preclude faster shale response or OPEC+ spare capacity releases that could flatten the curve faster than modeled.
Historical oil shocks show demand rarely collapses as sharply as feared once inventories draw and governments release reserves, allowing producers to book outsized cash flows before macro damage fully registers.
"Backwardation signals temporary disruption, but oil company capex restraint suggests management doesn't believe in a sustained high-price regime—a contradiction the article doesn't resolve."
The article conflates two separate bullish signals—backwardation implying temporary disruption, and underinvestment by oil majors—but misses a critical tension. If the Strait stays closed for years (per QatarEnergy's 3-5 year LNG repair timeline), oil companies' *refusal* to capex ramp becomes a massive headwind, not a tailwind. They're not leaving money on the table; they're signaling low conviction in sustained high prices. Meanwhile, backwardation can persist in structural shortage scenarios too. The real risk: oil stays elevated but *not* elevated enough to justify equity multiples if capex discipline persists and demand destruction accelerates.
If the market is genuinely wrong and the Strait remains disrupted, oil majors' capex freeze means they can't capitalize—supply stays constrained but *they* don't earn the windfall, independents and OPEC do, and energy equities underperform.
"The futures market’s backwardation is not a sign of imminent resolution, but a reflection of a desperate, under-supplied market that will force a structural re-rating of energy equities."
The market is currently mispricing the geopolitical risk premium. By relying on backwardation as a signal for 'normalization,' investors are ignoring the structural shift in energy security. If the Strait of Hormuz remains contested, we aren't just looking at a temporary supply shock; we are looking at a permanent increase in the cost of capital for global energy logistics. While management teams like Diamondback Energy are showing capital discipline, this is actually a tailwind for free cash flow yields in the medium term. I am bullish on Chevron (CVX) and the broader midstream sector (MLPX) because they are positioned to capture margin expansion from higher-for-longer prices while avoiding the CAPEX bloat of previous cycles.
The strongest case against this is that a prolonged closure of the Strait of Hormuz could trigger a global recession, which would destroy oil demand and force a price collapse regardless of supply constraints.
"The near-term upside for energy equities hinges on oil staying higher for longer, but a protracted conflict or demand weakness could invalidate the thesis and compress multiples."
Open takeaway: The article posits that futures imply a temporary supply disruption and a rally in energy stocks if prices stay elevated. The signal to watch is the curve: backwardation near term suggests tighter near-term supply but a belief in normalization later, which supports a late-cycle upside for CVX and energy infrastructure names like MLPX. Yet the missing context matters: a protracted conflict, harsher sanctions, or demand weakness could keep oil elevated longer than priced in, and capex in U.S. shale looks restrained, delaying supply response. Insured shipping costs and LNG repair timelines add pockets of risk. The thesis is plausible but fragile if geopolitics worsen or macro weakens.
If the conflict escalates or sanctions intensify, oil could spike far beyond expectations, forcing tighter monetary policy and demand destruction, which would hurt earnings more than it helps valuations.
"Alternative supply routes could emerge faster than expected, validating majors' capex caution and limiting upside for CVX and MLPX."
Gemini overlooks how QatarEnergy's LNG repair timelines might spur alternative routes that ease Hormuz constraints faster than assumed. This undercuts the case for higher cost of capital and sustained CVX multiples. It aligns with Claude's point on capex restraint, suggesting majors' caution could prove prescient if supply adapts, muting price spikes and midstream volume gains for MLPX.
"LNG rerouting timelines don't compress the near-term supply shock window where demand destruction occurs."
Grok's alternative-routing argument assumes LNG diversion happens fast enough to matter within the 2-3 quarter demand-destruction window. But LNG infrastructure—regasification terminals, pipelines, storage—takes 18-36 months to build or repurpose. Qatar's repairs alone are 3-5 years. Alternative routes don't solve the near-term Hormuz squeeze; they're a medium-term release valve that arrives *after* the macro damage Claude warned about. This actually strengthens Claude's thesis: majors' capex caution looks rational if they're modeling a demand cliff before supply relief kicks in.
"The emergence of a 'shadow fleet' will decouple energy prices from standard demand destruction models, complicating the simple bullish or bearish outlooks for CVX and MLPX."
Claude is right about the infrastructure lag, but both Claude and Grok ignore the 'shadow fleet' variable. If the Strait of Hormuz is restricted, we won't see a clean, market-based supply response or a simple demand cliff. Instead, we’ll see a bifurcated market where sanctioned barrels fill the gap, keeping prices high but volatile. This isn't just about capex; it's about a permanent geopolitical tax on energy logistics that forces MLPX to pivot toward domestic-only throughput.
"Shadow fleet alone won't sustain pricing power; durable upside requires reliable supply relief or sustained demand, otherwise MLPX throughput upside is limited."
Gemini’s 'shadow fleet' idea risks overstating how much sanctioned barrels can sustain prices without volatility or capex constraints. Even with Hormuz disruption, higher shipping costs, insurance, and routing delays cap realized margins, while demand recovery and refinery throughput determine actual volumes. A durable upside requires more than geopolitics; it needs reliable supply relief or sustained demand, or CVX's pricing power but limited MLPX throughput upside.
The panel discusses the implications of oil futures curve backwardation, with some seeing it as a temporary supply disruption supporting higher-for-longer prices and others warning of demand destruction and capex restraint. The key risk is prolonged geopolitical tension leading to a demand cliff before supply relief, while the opportunity lies in capturing margin expansion from higher prices in the midstream sector.
Capturing margin expansion from higher prices in the midstream sector
Prolonged geopolitical tension leading to a demand cliff before supply relief