Crude oil prices have retreated sharply from their peaks set between March and May during the first phase of the conflict, which began on February 28. They also remain far below their 2022 post-pandemic peak when Russia invaded Ukraine, and their all-time high from the summer of 2008 just before the global financial crisis. 

It’s a different story for gasoline and diesel prices: They are trading near-record highs as well as near-record premiums over crude oil. (Normally, we quote gasoline and diesel prices in dollars per gallon, but here we convert those prices into dollars per barrel to make them directly comparable to WTI crude oil). As of this writing, gasoline prices are trading at around $60 per barrel above crude oil, while ultra-low sulfur diesel (ULSD) prices have a premium close to $90 (Figures 1 and 2). 

While renewed U.S.-Iran tensions have provided support for crude oil prices, the historic expansion in crack spreads – the price difference between a barrel of crude oil and the refined products derived from it – stems primarily from acute supply constraints in global refining capacity. Recent Ukrainian drone strikes on Russian refining infrastructure have disabled substantial downstream processing capacity, triggering domestic fuel shortages and curtailing Russian exports of ULSD and gasoline. The resulting dichotomy—where global crude supply remains relatively adequate compared to a structural deficit in refined products—has led refined product prices to decouple from crude oil.

This has important implications for consumer prices in the U.S. where gasoline prices constitute 2.6% of the consumer price index (CPI) while diesel fuel and heating oil add an additional 0.4%. Gasoline and diesel prices dipped at the pump in May and June, but have begun to rise again in tandem with crude oil futures after the U.S.-Iran ceasefire broke down on July 8 (Figure 3).

Following a brief period of flatter price curves in late June and early July, crude oil, gasoline and ULSD have returned to a sharp backwardation, with prices for near-term delivery significantly above those for forward positions (Figure 4). Backwardation occurs during periods of supply shortages or an uptick in immediate demand, and implies a convenience yield or a premium for immediate delivery. This curve structure directly reflects physical inventory dynamics. Steep backwardation disincentivizes commercial stockpiling—since holding inventory incurs a negative physical carry relative to prompt sales—leading to rapid inventory drawdowns at key hubs like Cushing and Gulf Coast refineries, further tightening prompt availability.

The financial implications of backwardation in crude oil and refined product markets become clear when one compares how individual contracts have performed since the beginning of 2026 with the hypothetical returns of fully funded reinvested futures rolled 10 days prior to contract expiry. At the beginning of 2026, nearly all the WTI contracts, irrespective of expiry month, were priced at around $57 per barrel.  Currently, the WTI front-month (September contract) price is around $84 per barrel, around 47% higher than the front-month (February at the time) and other contracts were priced in early January.  However, a fully funded, reinvested long position in front-month WTI futures—rolled 10 days prior to contract expiry and indexed to $57 at the start of the year—would now stand at $105, a gain of 84%. In other words, the convenience yield stemming from the backwardation would have an additional 27% return to a fully funded long position beyond the price progression in the front-month (Figure 5).

The impact of backwardation is much greater in the ULSD markets, where the gap between high near-term prices and lower longer-term prices has, on average, been much more pronounced versus the crude oil market. On the first trading day of the year, for example, the front-month (February) ULSD contract traded at $2.12 per gallon. As of this writing, the front-month (September) contract is trading at $3.99 cents per gallon—an 88% rise in the spot price. An USLD index based at $2.12 for a fully funded reinvested long position rolled 10 days prior to contract expiry would be worth $4.95, a gain of 133%. In other words, the cumulative positive roll yield stemming from the backwardation would have boosted the returns of a fully funded long position by an additional 45% on top of the 88% increase in front-month prices (Figure 6).

The exception, thus far, has been gasoline where the difference between the evolution of the front-month price (obtained by stringing together front-month contracts without considering the roll yield) and the return of a fully funded long position in the various front-month contacts rolled 10 days prior to expiry, would have been fairly negligible. At the beginning of the year, the front-month price (February) was $1.71 per gallon. As of this writing, it stands at $3.40 cents per gallon while the index of a reinvested long position in front-month contracts rolled 10-days prior to expiry would be at $3.31 today. For reasons related to seasonal stock builds, gasoline futures spent much of the later part of winter in mild contango (the opposite of backwardation, and where front month prices are lower than those further out, and the roll yield is negative). While this has held back the return of being long gasoline thus far, it’s worth noting that gasoline markets are now in strong backwardation and, so long as the backwardation remains in place, the gasoline markets will also experience a strongly positive roll yield in coming months (Figure 7).

For market participants, these price curve dynamics can alter hedging economics significantly. Commercial producers locking in long-term revenues face a penalty when hedging in backwardated deferred months, whereas commercial consumers and refiners holding short futures hedges encounter a persistently negative cost of carry when rolling positions forward. Conversely, systematic-trend and long-only commodity funds benefit from the structural tailwind provided by positive roll yields.

Investors should also remember that the shape of the futures curve is constantly changing. Backwardation can strengthen, weaken, collapse completely or even flip back into contango. As such the roll yields apparent in today’s price can change quickly.