Forget spot prices. The truly remarkable story in the oil market is what is (not) happening at the back end of the futures curve.
Front-month Brent futures prices have climbed almost US$17 per barrel (15.6 percent) since the start of the year. And prices for oil delivered in December 2015? Well they have risen a whole US$3.35 (3.6 percent).
Correlations between spot and deferred oil prices are at the lowest for more than four years as the back end of the curve fails to rally in line with nearby futures prices (Chart 2).
While spot Brent prices are back to the levels recorded in the first half of 2011, prices for deferred contracts are significantly lower than at the corresponding point last year. December 2015 futures are trading around US$96 compared with around US$105-109 at the height of last year's price crisis.
Nearby and deferred contracts have become almost entirely disconnected. Nearby prices are being driven by short-term supply disruptions and fears about escalating tensions with Iran. In contrast, forward prices remain anchored by estimates of the projected long-term marginal cost of producing sufficient crude to meet demand.
It is not the first time spot and forward prices have diverged in recent years.
Large disconnections occurred in 2005 and again in 2007 when long-dated futures failed to rally as fast as the spot market.
Market participants were slow to recognise the rise in oil prices was not just a temporary blip but reflected a step-change in emerging market energy demand and escalating exploration and production costs ("the end of cheap oil").
In 2009, another big disconnection occurred when spot prices sank in the midst of recession, while the forward market was supported by hopes of eventual recovery and the resumption of supply-side shortfalls.
The final set of disconnections were associated with the spike and subsequent fall in spot prices during the first half of 2011 caused by the Libyan revolt, which largely left forward prices unchanged, as the market judged (correctly as it turned out) that the interruption of exports would prove temporary.
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