Satyajit Das explains that the price quoted for near‑month oil futures, hovering around $100 per barrel, often masks the true cost of physical cargoes, which can command premiums of 80‑100 % above that level. The Iran conflict revived the gap between paper contracts and spot transactions, exposing how politicians cite futures to downplay rising energy bills.

Futures pricing assumes arbitrage between immediate purchase, storage, and deferred delivery, but oil’s heterogeneity, transport costs and limited short‑selling hinder that mechanism. Producers and refiners need specific grades at concrete locations, while financial investors trade contracts without ever taking delivery. This split created the 2020 WTI plunge to minus $37.63, when traders paid to avoid storing oil.

The resulting market structure often places futures in backwardation, a state where spot prices exceed futures. Keynes argued this reflects a convenience yield that producers accept to hedge against price falls. With constrained supply from Saudi Arabia, Russia and U.S. shale, and limited elasticity in freight demand, the backwardated market is likely to persist, keeping spot premiums high.