Forward oil prices are trading at record discounts as the market responds to fears about near-term shortfalls while also pricing in a big increase in supplies from the Americas and the Middle East over the next four years.
Front-month Brent futures have been trading above $116 a barrel, the highest level since November and before that September 2011, as freezing weather across Europe, signs of revival in North America and renewed interest in the Brent-WTI spread shake the oil market out of its recent torpor.
But prices for deferred futures contracts such as December 2015 have barely moved and remain firmly stuck below $100.
Throughout the boom of 2004-2008, spot and forward oil prices increasingly moved in tandem. Prices along the length of the curve became tightly integrated as well as correlated with other asset classes such as equities. But spot and forward oil prices are now segmented, both from one another and from share markets.
Four-year forward prices are trading at a record discount of $19 per barrel (20 percent) compared with oil for immediate delivery.
Deferred prices have historically been much less volatile, and analysts usually claim they are a better guide to market expectations about the long-term marginal cost of production.
During the 2008 price spike, forward prices generally rose in line with the spot market, cresting over $140 by July 2008, as traders anticipated immediate shortages and lack of spare capacity would last indefinitely in a world of peaking oil supplies.Read More
for detailed price charts.
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