ENENERGY MARKETS & BUSINESS PLANNING · OCTOBER 11, 2026
Fed Research Warns Oil Futures Can Misstate Expected Spot Prices
A Federal Reserve FEDS Note finds that severe oil-market backwardation and unusually low liquidity during geopolitical supply disruption can weaken the usual link between futures prices and expected future spot prices.
What the October 9 research note says
Source publication date: October 9, 2026. Federal Reserve Board staff examined how a major oil-supply disruption and closure of the Strait of Hormuz affected the relationship between WTI spot and futures prices. The note reports that spot prices moved well above futures prices and that the resulting backwardation was temporarily near its most severe level in the past quarter century. FEDS Notes present staff analysis and views; they are not a Board policy statement or official price forecast.
- 01Risk premiums may be negative
- 02Market depth is unusually low
- 03Futures are not a guaranteed forecast
Risk premiums can change the meaning of the curve
The authors' empirical work indicates that oil-futures risk premiums have likely been negative since March. In their interpretation, large energy consumers may value long futures as protection against further price increases and macroeconomic damage, pushing futures above the marginal investor's expected spot price at expiry even while the curve remains below today's spot price. The authors caution that current conditions are unusual and that some estimates extrapolate beyond the typical historical range.
Low liquidity adds another layer of uncertainty
The note reports pronounced reductions in top-of-book market depth for shorter- and longer-dated oil contracts during the conflict. Reduced depth can increase transaction cost and liquidity premiums and can make execution differ from a screen price. The study therefore supports using futures as one market signal, not assuming a one-to-one mapping between today's curve and the eventual cash price paid by a specific business.
Practical borrower takeaway
Build fuel and petroleum-input cases around actual gallons or units, location basis, taxes, freight, supplier surcharges, contract timing, hedge collateral or margin needs, and customer pass-through provisions. Test spot-price spikes, a falling curve that does not fully reach local delivered cost, and thinner liquidity. Reconcile any hedge with qualified advisers and lender covenants, and keep sufficient working capital for timing differences between operating cash payments and hedge settlements.
Fuel-sensitive borrowers should not treat the futures curve as a guaranteed cost forecast; model spot prices, basis, liquidity, surcharges, hedge mechanics, and working-capital needs under several scenarios.
Discuss a financing need →This independent summary is based on the cited source and is provided for general educational purposes only. Terms and program requirements may change.