After Trump's threats to attack Iran, the price of oil in the near-term has reached a record high compared with later deliveries.

U.S. crude futures for immediate next-month delivery hit their highest-ever premium on Thursday as traders scrambled to secure barrels following Donald Trump's pledge to?continue?attacking Iran. Backwardation, or the trading of immediate delivery barrels at a higher price than barrels due to arrive in future months, indicates traders are expecting a tighter supply in the near term. WTI crude futures contracts for May were traded up to $16.70 higher per barrel than the contract for June during the session. The contract reached a session peak of $113.97 per barrel on Thursday, before settling down at $111.42. The U.S. and Israeli war against Iran, which is nearing its end?of fifth week, has removed millions of bbls of oil per day from the world market. This has caused energy prices to reach multi-year-highs and fuel shortages in countries that rely on oil and natural gas from the now blocked Strait of Hormuz. Around 20% of world oil flows through the Strait of Hormuz, a critical chokepoint. In a speech on Wednesday evening, Trump vowed to "hit Iran extremely hard" in the coming weeks. However, he did not outline a plan for opening the strait. He suggested that other countries should lead the effort to open the strait.

HIGHER PRICES MAY THREATEN DRILLING

Oil for immediate delivery is up sharply. However, oil that will be delivered in six months or a year has also increased, although less dramatically. The higher price will increase the likelihood of producers restarting their rigs.

Oil for October deliveries, which is a key factor for companies to decide whether or not to increase drilling, trades at around $73.64, which is 13% more than it was before the start of the war in late February.

Andy Hendricks is the CEO of Patterson UTI, one of America's largest drilling contractors.

He added that "what is happening in oil prices today is not the main driver for the U.S.. You need to know what the price of crude oil will be six to nine month's time." Kirk Edwards, president of Latigo Petroleum in Odessa Texas, said that the company is cautiously optimistic regarding new drilling in the second half of this year. However, the price will have to be higher than $75 per barrel throughout the remainder and into 2027. Baker Hughes, an energy services company, said that oil rigs in the U.S. increased by two this week to 411.

GASOLINE Prices are on the Rise for Consumers

Lorie Logan, Dallas Federal Reserve president, said Thursday that U.S. producers of oil are unlikely to boost output just yet. They need to be "confident that these higher prices will stay for a while." She stated that she has not heard of a "dramatic rise in production in the near future."

Bryan Sheffield, the founder of Formentera Partners, said that crude prices for delivery in May 2027 are only $68.43 per barrel. This is a discount of more than $40 compared to front-month "crude futures", which will make drillers hesitate.

Sheffield, former head of Parsley Energy, said that the minus-$40 difference is a "head-scratcher" and is preventing us from moving forward. He's considering adding a new rig or extending existing rig contracts. "It feels like the back month will not move and it's frustrating to underwrite drilling programmes," he said. (Reporting and editing by Nathan Crooks, David Gaffen and Arathy Sommesekhar from Houston)

(source: Reuters)