In the case of oil, the current price is (sort of) a prediction of the price at a later date. If the market believes that the price of oil will reach a particular level on a particular date, the futures price will reflect that expectation. This sets a floor on the current price, specifically, the price at which it is profitable for a well-financed institution to take out a loan payable on the futures settlement date, buy physical oil now, pay for storage costs, and simultaneously sell the oil for a future date on the futures market.
Note that all prediction markets, especially those where trades are tied to a physical or financial asset that is regularly bought and sold share a similar property: prices are driven by arbitrage opportunities and participants’ hedging needs just as much as by actual predictions.
In the case of oil, the current price is (sort of) a prediction of the price at a later date. If the market believes that the price of oil will reach a particular level on a particular date, the futures price will reflect that expectation. This sets a floor on the current price, specifically, the price at which it is profitable for a well-financed institution to take out a loan payable on the futures settlement date, buy physical oil now, pay for storage costs, and simultaneously sell the oil for a future date on the futures market.
Note that all prediction markets, especially those where trades are tied to a physical or financial asset that is regularly bought and sold share a similar property: prices are driven by arbitrage opportunities and participants’ hedging needs just as much as by actual predictions.