Title:   Haymaker Daily: Backwardation: A Forward Oil-Price Clue?
Show:    Haymaker (Substack) — Haymaker Daily, paid
Guest:   David Hay / The Haymaker Team (co-founder & ex-CIO Evergreen Gavekal)
Date:    2026-AUG-19
URL:     https://haymaker.substack.com/p/haymaker-daily-01b
Length:  written Substack post — no timestamps
Note:    Written Substack post; no timestamps; text verbatim, images/charts omitted (the two
         Bloomberg exhibits — the spot-vs-12-month-out WTI spread synced against the oil price
         since 2016, and the XLE chart — are marked inline in brackets where they appeared).
         Captured via Stephen's logged-in subscriber session. Standard Haymaker legal disclosure
         boilerplate omitted.
=====

Hello, Haymakers:

While Team Haymaker strives mightily to be as objective as possible, some degree of confirmation bias is inevitable when there are humans involved. (Actually, as we learn more about AI, we're not sure it isn't subject to some of its own blind spots.) Because we have a decidedly pro-energy outlook — particularly with oil, natural gas, uranium and, reluctantly, coal — we have to guard against only relaying data which backs up our bullish views on this long-disdained sector.

In that spirit, we're running the pair of charts below homing in on something we find fascinating and unique. On the latter, frankly, we haven't come across analysis like this from any of our numerous energy research sources.

These visuals require a bit more elaboration than usual. The first shows the difference between the current price of oil and the futures contract for West Texas Intermediate (WTI) one year out.

In days gone by, this structure, where the more distant contract sells at a discount to the so-called front, or spot, month was a rarity. That's why it is called backwardation; it's the inverse of the usual slope of the oil futures market. But for years now, it has been the prevailing condition. (Why that persists is worthy of a future Daily.)

Yet, the degree of backwardation has a valuable information signal hiding in plain sight: When it is very pronounced, the price of oil has consistently peaked. The second chart, which we've tried to sync with the first, shows you the price history. (Our apologies for the aesthetic mismatch; hopefully a small price to pay for a useful bit of data.)

[Chart: Charts of the Spread Between Spot vs the 12-Month-Out WTI Contract and of Oil Prices Since 2016 — Bloomberg]

The two most extreme examples were in 2022 and earlier this year. The first was during Russia's invasion of Ukraine. That created pervasive fears of a severe oil shortage due to sanctions on Russian exports. As a result, the near-term price of crude went to over a $30 premium to the one-year out futures contract. (Realize that industrial users of petroleum products, such as airlines, are heavy users of these instruments to hedge their costs so this is far from merely a plaything for hedge funds and other speculators.)

The second was back in March during the early days of the Iran War. As you can see, in both instances, the price soon did a cliff dive.

Of course, that's only two examples, but perhaps more interesting, and persuasive, are the less extreme backwardation peaks. Those are a bit harder to see, but whenever the backwardation hit $10 the oil market corrected, at least to a degree.

Presently, the backwardation is right around $10, suggesting some kind of pull-back may be looming near-term. However, our caution level is of a modest nature based on the exceptionally supportive fundamental set-up. In other words, don't be surprised if oil dips a bit but, if it does, prepare to be on the buy side.

A further confirmation of the long-term uptrend is the extremely bullish nature of the breakout to an all-time high by the leading energy producer ETF, XLE, as we have previously noted. However, again to be fair, it is currently quite extended on a near-term basis, also indicating a correction might be close at hand.

[Chart: XLE — Bloomberg]

The Haymaker Team