Oil Prices Are Surging, but Futures Are Falling. Why That’s a Bullish Sign.

Even after oil prices surged this past week following a surprise OPEC production cut, oil traders don’t seem convinced prices will keep rising. In fact, oil futures seem to expect prices to retreat after the near-term price shock.

While the nearest-term Brent crude futures, the international benchmark, were up 6.6%, to $85.05 per barrel, on the week through Thursday, futures expiring in December 2023 rose 4.6%, to $81.50. The fact that December futures are trading at lower levels than today’s prices looks bearish: Why buy oil stocks if oil prices will fall by year end? But the current trading pattern, known as backwardation, has actually been a bullish signal in the past, and may point to more gains for oil prices and stocks. On Monday, the

Energy Select Sector SPDR

exchange-traded fund was up 3.9%.