Forward Guidance
May 31, 2026 -Weekly Comment
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The CEO of Chevron, Mike Wirth, was on a Bloomberg interview a couple of days ago, and was asked about the forward futures curve in crude. I was surprised when he said “we don’t really look at that very frequently”. He said they run their own analysis and simulations for planning purposes. “We don’t look at the futures curve as a prediction of future price.” Both Chevron and Exxon CEOs have warned that inventories are low and price risks are to the upside. That particular signal is clearly reflected in options: CLZ6 settled 78.29. CLZ6 100c, almost 22 otm are 3.10 while the 67p, only 11 otm are nearly the same price at 3.17.
https://x.com/lisaabramowicz1/status/2060351071923417414
Below is a curve snapshot of three different days, Feb 27, Mar 27 and May 29. Feb 27, pre-hostilities, is in orange. As Wirth mentioned, shortages are often followed by gluts, and the most recent curve pricing seems to suggest just that, with much lower prices in forward contracts.
Below I add the SOFR futures curve for the same three days. What stands out of course, is the sell off in contracts one-year forward (and beyond) as current oil prices and soaring equities spark inflation fears. SFRM7 has fallen 100 bps in three months, and though rate futures rallied this week, the market appears to have accepted the idea of higher forward rates.
This, despite all kinds of negative news regarding consumer delinquencies and slower growth. Worth noting is that both WMT and COST were hammered this week, with the former tumbling 13.7% from the high on May 19, and the latter down 12.6% from the same date. Of course, major indexes closed at new all-time highs.
By the way, option pricing in SOFR also indicates fear of higher rates. SFRZ6 settled 9617. SFRZ6 9550p settled 6.0 (67 otm) while the equidistant 9681.25c settled 5.0, but that’s with SFRZ6 reflecting nearly one hike already.
When looking at the oil and SOFR curves, one might say they’re giving contradictory signals. Oil prices are down in the future but rates are higher. The other conclusion of course, is that there is more of an underlying inflation fear than just what’s related to energy prices.
The first Warsh FOMC is two and a half weeks away on 17-June. Prior to that we’ll get NFP this Friday and CPI the following Wednesday, 10-June. On Monday ISM Mfg is released, which featured a huge jump in prices paid last time to 84.6; expected 85.0 this time. Headline ISM Mfg expected 53.0 from 52.7. NFP expected 89k; I would think this week’s economic data will lean to the stronger side and reverse the modest rally in bonds from last week. The June FOMC will likely see little change in terms of immediate policy.
OTHER THOUGHTS / TRADES
Last week I mentioned the idea of picking up cheap call spreads on red SOFRs, e.g. 0QZ6 9675/9725cs which had settled 4.75 vs Z7 9604.5. On Friday SFRZ7 settled 9616 and the 9575/9625cs at 5.5. While I expect a pullback in prices this week, I can still see holding call spreads.
What we have seen is paper rolling long structures further out the curve, for example on Friday SFRZ6 9700/9800cs sold vs bot SFRM7 9700/9800cs, paying 5 for June 20k. Again, as the Iran war started, red SOFR contracts traded above 9700. (M7 cs settled 6.75 on Friday).
| 5/22/2026 | 5/29/2026 | chg | ||
| UST 2Y | 413.0 | 401.0 | -12.0 | |
| UST 5Y | 427.4 | 414.6 | -12.8 | |
| UST 10Y | 457.0 | 444.9 | -12.1 | |
| UST 30Y | 508.1 | 499.0 | -9.1 | |
| GERM 2Y | 264.1 | 252.6 | -11.5 | |
| GERM 10Y | 303.7 | 293.7 | -10.0 | |
| JPN 20Y | 368.5 | 357.2 | -11.3 | |
| CHINA 10Y | 174.8 | 171.0 | -3.8 | |
| SOFR M6/M7 | 37.8 | 25.0 | -12.8 | |
| SOFR M7/M8 | -15.5 | -12.0 | 3.5 | |
| SOFR M8/M9 | 4.5 | 3.0 | -1.5 | |
| EUR | 116.03 | 116.59 | 0.56 | |
| CRUDE (CLN6) | 96.60 | 87.36 | -9.24 | |
| SPX | 7473.47 | 7580.06 | 106.59 | 1.4% |
| VIX | 16.70 | 15.32 | -1.38 | |
| MOVE | 78.43 | 70.22 | -8.21 | |
