Anyone in the oil market would tear that argument apart:
The backwardated curve (front at $100, December at $77) doesn’t mean “the market thinks prices will fall to $77.” It means holders of physical oil are demanding a large premium for near-term delivery relative to deferred delivery. That’s a statement about current scarcity and inventory conditions, not a prediction about where spot prices will be in December.
The empirical record shows just how far off Goolsbee is in relying on the curve.
If you simply compare where the futures curve said oil would be in 6–12 months versus where spot actually landed, the curve’s forecasting accuracy is terrible — no better than a naive “price stays where it is today” model. Studies going back decades have shown that oil futures are not efficient predictors of future spot prices. The curve told you oil was going to $40 in 2007. It didn’t. It told you oil was going to recover quickly in 2014–2015. It didn’t. It said sub-$30 oil was transitory in early 2016 — that one it got roughly right, but largely by accident.
Some of the most violently backwardated oil markets preceded further price increases, not declines. The curve was backwardated in mid-2007 before oil ran from $75 to $147. It was backwardated through much of 2021–2022 as oil kept grinding higher. The backwardation was telling you the physical market was tight — and tight physical markets often get tighter before they loosen.
When physical inventories are tight, refiners and commercial users will pay a steep premium for barrels now versus barrels later. That’s the convenience yield — the value of having the physical commodity in hand. A steep backwardation means inventories are drawn down and the physical market is tight today
