The structure of Brent crude oil futures is showing a “scarcity premium” that has widened to the most since 2013 this week, a sign of the tight market underpinning oil’s rally amid a wider energy crunch as economies recover from the COVID-19 pandemic.

The premium of the immediate Brent crude contract to the December 2022 price stood at $8.13/bbl on Oct. 15 after reaching $8.30 on Oct. 11. The value on Oct. 11 was the highest since 2013, according to Refinitiv Eikon data.

One of the main factors underpinning prices has been the reluctance of OPEC and allies, known as OPEC+, to ease supply cuts, made during the worst of the pandemic, more rapidly.

Carsten Fritsch, analyst at Commerzbank, said the surge in prices was due to a tight market, as shown by the 12-month forward curve and the premium at which the first-month futures contract is trading to the second.

“Such high premiums for short-term oil deliveries point to an acute tightness of supply, brought about by robust demand and limited supply,” he said.

“For as long as OPEC+ appears unwilling to counter this by expanding its oil production to a greater extent, this is unlikely to change and oil prices are likely to continue rising.”

The outright price of Brent has surged more than 60% this year and hit $85 for the first time since 2018 on Oct. 15. As well as OPEC+ restraint, record European gas prices, which have encouraged a switch to oil for power generation, have also spurred the rally.

This price structure, whereby prices for immediate delivery are higher than those for future supply, is known as backwardation. The opposite, in which prompt prices are cheaper, indicates plentiful supply and is called contango.

Japanese bank MUFG, in a report on Thursday, termed backwardation a "scarcity premium," saying it was likely to continue for now and that oil's rally was poised for further near-term momentum.

“The blowout in Brent crude timespreads in recent trading days signals that the pathway [to] even higher oil prices remains firm,” MUFG said.

“All signs point to the current physical supply constraints increasingly garnering traction over the winter.”

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