Woodside (WPL) Strategic Valuation, page-10

Consensus valuations of commodity producing businesses are predicated in great part on the the pricing of futures.

The sharp rise in the spot crude price over the past 12 months has resulted in the futures curve being in sharp backwardation... i.e.,.  while the short end has ripped upwards, the Dec 2025 contract has barely moved



Based on the strong underlying supply-demand fundamentals for crude, I fully expect the long end to lift significantly at some stage over the foreseeable future and the reason it hasn't in recent months is because of the dual impacts of the announcement by the US government's intention to release strategic reserves into the market (which will really only be a drop in the ocean and, if anything, merely serves to publicize just how tight the global oil market is) and omicron (which, looking to be quite mild, will pass in due course).

These factors have featured prominently in the mainstream media, resulting in the drowning out of other significant drivers of future oil prices, such as:

-  global demand that continues to surprise on the upside (despite omicron, mind)
- OPEC+'s continued quota over-compliance (i.e., OPEC+ as a whole falling short of pumping quotas), and a number of early indications of energy nationalism, such as this:



Note: While Mexico is a small exported of crude, it is one of the world's largest seller's of long-dated crude, so it's exit out of the futures market will remove a meaningful cap on futures prices.

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