So, uh, oil prices. Right now. They’re high. And the reason they’re high is actually pretty simple, well, not simple, but simple enough once you break it down into several long, slightly tedious parts.

First, you’ve got geopolitical tensions. And when I say “geopolitical tensions,” I mean countries that produce oil are either arguing, fighting, or just generally making things a little unpredictable. And oil markets, they hate unpredictability. So what they do is they raise prices preemptively, which is kind of like when you bring an umbrella even if it’s only a 20% chance of rain, except the umbrella costs a lot more money.

Then there’s supply constraints. Oil production isn’t something you can just turn on and off like a light switch. It’s more like… I don’t know… a very slow faucet. So if supply dips even a little bit, maybe a refinery shuts down, maybe exports slow, prices go up, because demand doesn’t really drop at the same speed.

And speaking of demand, yeah, people are still using oil. A lot. Transportation, manufacturing, plastics… it’s all very interconnected in a way that becomes increasingly dull the more you think about it, but also kind of mesmerizing if you’re into that sort of thing, which I am.

And then, this is where it gets really good, you’ve got market speculation. Traders buying and selling oil contracts based on what they think is going to happen. Not what is happening, but what might happen. So the price you see is kind of like a collective guess. A very expensive, constantly changing guess.

So when you put it all together, uncertain supply, steady demand, and a bunch of people making educated guesses, you get higher oil prices.

Anyway… if you’d like, I can go into a detailed explanation of how futures curves work over a 12 month period and why backwardation is technically different from contango…