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The WTI Crude Oil May 2026 contract is currently trading at a premium of $12 above the Sep 2026 contract, considerably outside of its normal range.

EUR/USD is testing the lower boundary of a broadening top formation. A confirmed breakdown, coupled with a renewed safe-haven bid into the greenback on prolonged geopolitical risk, would open the door for further downside.

The technology-heavy Nasdaq-100 remains under sustained selling pressure with momentum deteriorating. The critical level is 24,000 — a decisive break below risks triggering an accelerated move lower.

After a short-lived breakout from a multi-year range, the Russell 2000 Index has retreated back to the prior resistance-turned-support zone. Failure to hold here shifts the bias to further downside.

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Exactly a month ago, we penned our previous piece calling for caution that a kinetic conflict might break out in Iran soon. Little did we know that merely one weekend later, it did. As of writing, the situation continues to escalate — South Pars gas field has been struck by Israel, and Iran has vowed to retaliate by targeting energy infrastructure in Saudi Arabia, the UAE and Qatar. Once again, we must emphasize: geopolitics has never been our forte, and we make no claims to expertise in the field.

What we do observe, however, is a pronounced sentiment shift in the market — or what we like to call a crude awakening (pun intended). When the conflict first broke out, the prevailing sentiment on social media was one of disbelief. Many assumed the initial spike in crude oil prices would prove to be yet another short-lived knee-jerk reaction, one to be "faded" — as the few before it had been. Cognitive biases ran deep; investors anchored to recent experience and dismissed the possibility of a sustained move. Now, four weeks in, with the broader Middle East drawn into the conflict, more and more market participants are being forced to reckon with the possibility that this time is truly different. The consequences of a closure of the Strait of Hormuz are not merely dire, they are existential for energy flows. The sheer volume of supply disrupted, and the demand destruction it implies, particularly for energy-dependent economies in Asia, point toward a stagflationary outcome that now seems all but baked in: declining economic growth paired with rising inflation driven by surging energy import costs.

Just as in our previous piece, where we identified crude oil as "mispriced" in the face of a potentially disruptive conflict, we continue to look for similar asymmetric setups in the market. Given the extreme volatility in crude oil today, we no longer find trading outright crude, either long or short, to be viable from a risk-reward perspective, even if our view remains that prices will stay higher for longer. What we do find compelling, however, is the term structure of crude oil.

For readers less familiar with the concept, the term structure refers to the shape of the futures curve when prices are plotted across different contract expiration months. "Backwardation" describes a curve where front-month contracts trade at a premium to deferred contracts, which is precisely what we are seeing in crude oil right now, and to an extreme degree. For example, WTI May 2026 is currently trading at a roughly $12 premium to the September 2026 contract, whereas the historical range for this spread has typically been below $2. In our view, this extreme backwardation likely reflects a combination of two factors. First, the market is still not fully convinced of a higher for longer crude oil regime, or in other words, many participants continue to believe the disruption and its impact on energy prices will prove transient and revert to normal (whatever that means) in short order. Second, oil producers may have aggressively seized the opportunity to hedge their forward production at elevated prices by selling deferred WTI Crude Oil futures, adding further supply pressure to the back end of the curve. Neither of these forces can suppress deferred crude prices indefinitely, especially if the conflict continues to escalate. What we may then see is a flattening of the curve from its current deep backwardation, most likely driven by the back end repricing higher, though a de-escalation scenario that pulls the front end down sharply would produce a similar convergence. The appeal of trading the term structure rather than outright price is precisely this: both scenarios would cause the front-to-back premium to collapse. Our base case, however, remains the former rather than the latter.

In addition, we think that the fallout from this crisis will not remain contained within the energy space alone, particularly as higher energy prices and demand destruction begin to feed through into the real economy. In such an environment, we may also see a bid return to the U.S. dollar, which has weakened substantially against most major currencies since the beginning of 2025, the euro in particular. The EU remains acutely vulnerable to global energy price shocks, relying on imports for nearly 60% of its energy needs. The longer the disruption persists, the greater the strain on the euro.

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We conclude with the following hypothetical trades:¹

Case study 1: Short WTI crude oil calendar spreads

If we hold a bearish view towards crude oil front-to-back premium, we would consider taking a short position in WTI crude oil calendar spreads (CLK6-CLU6) at the current price of 12.4, with a stop-loss above 16, a hypothetical maximum loss of 16 – 12.4 = 3.6 points. If the term structure flattens, this premium has the potential to drop to six, resulting in 12.4 – 6 = 6.4 points. Each point move in the WTI Crude Oil (CL) futures contract and calendar spreads is $1,000 USD. The E-mini Crude Oil (QM) and Micro Crude Oil (MCL) futures contracts are also available in 1/2 and 1/10 of the standard size, respectively.

Case study 2: Short EUR/USD futures

If we hold a bearish view towards EUR/USD, we would consider taking a short position in EUR/USD (6E) futures at the current price of 1.152, with a stop-loss above 1.172, a hypothetical maximum loss of 1.172 – 1.152 = 0.02 points. Looking at Figure 2, if the broadening top breakdown is confirmed, EUR/USD prices have the potential to drop to 1.082, resulting in 1.152 – 1.082 = 0.07 points. Each EUR/USD futures contract represents 125,000 euro, and each point move is 125,000 USD. The E-mini EUR/USD (E7) and Micro EUR/USD (M6E) futures contracts are also available in 1/2 and 1/10 of the standard size, respectively.

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¹ Examples cited above are for illustration only and shall not be construed as investment recommendations or advice. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. Please refer to full disclaimers at the end of the commentary.

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