Danske Bank: The forward market expects a higher oil price
The forward market serves as another predictor for where the oil price is headed. One noticeable characteristic of the forward market for Brent crude has been the persistent stickiness of the long end of the curve. The generic 60th position on the forward curve, equivalent to the market’s five-year ahead expectation, has been relatively stable around the USD90/bl level over the past year despite the significant movement in the front end of the curve.
Hence, the Brent crude oil forward curve is now in contango and the forward market thus expects the price on Brent crude to recover from the current low level. However, the forward market does not expect it to climb back above the USD100/bl level, where it was for the most part during the period from early 2011 to August this year. The market currently expects the price on Brent crude to recover to around USD80/bl in five years time.
