There is a dislocation between oil prices on the futures market and the physical market.
Fears of a recession have caused the price of oil to plummet. The global benchmark oil fell below $100 earlier this week for the fifth week in a row.
The last time it happened was in November of last year.
The outlook for the global economy has been darkened due to hot inflation and interest rate hikes.
Fresh data this week that showed a 9.1% rise in consumer prices in June beat economists predictions and prompted investors to line up bets on whether the Fed will raise by a quarter of a point or a full point later this month.
Ole Hansen, head of commodity strategy, said that the main catalyst for the weakness in oil was the risk that central banks would raise interest rates to curb inflation and cause a recession.
With the economic outlook getting worse, traders and speculators are selling oil on the expectation that demand will fall.
If a recession wipes out demand for oil, prices could fall to $65 a barrel, according to Citigroup. Both forecasts are not realistic according to Hansen.
"This market is so difficult to call right now, but we probably have to accept that until we see inflationary pressures start to ease, then we are still at risk of additional selling hitting these markets, thereby taking prices lower from where we are right now."
Forties, a grade of North Sea crude that underpins the global oil price, was quoted at its highest premium to the benchmark in six years. One trader bid for a cargo of oil at a premium of $5.35 a barrel, the strongest in 14 years, and found no sellers.
The tight market is reflected by that, as squeezed supply of physical crude oil would cause prices to go up in line with the law of demand and supply.
The futures market is telling us something that the physical market isn't. There is a discrepancy between the paper and the physical market. That's something that really remains to be seen.
Since the invasion of Ukraine, traders have shied away from buying Russia's flagship Urals crude, which used to be a staple at many regional refineries.
The bear case for oil futures will be found if physical crude oil prices stay high.
The market is a supply and demand driven one. The futures might have to reflect on the strength of the market if prices for physical delivery remain elevated.