Brent crude outlook seems deferred buying

The bear market in oil prices has intensified since we went long deferred Brent.

We anticipate crude oil markets to begin the process of rebalancing during 2016 and that current depressed pricing of Brent crudes - while wholly justified on a fundamental basis - are depressing the deferred value of Brent more than is justified by prospective market balances.

Oil prices have slumped now 68% below their late-June 2014 peak and close to the late-2008 low point associated with the global financial crisis.

However, oil markets continue to adjust to the collapse in prices on both side of the balance. Demand growth has accelerated to 1.8 mbd in 2015, with consumer-centric fuels posting healthy yoy growth rates in EM and DM economies alike.

Above trend demand growth is expected in 2016 at 1.3 mbd, as price impacts fade. Producers in OPEC and non-OPEC are cutting capex, even as OPEC has effectively abandoned any pretense at capping production with key producers pursuing a strategy market share defense.

Thus, we retain our preference for owning price exposure in the deferred part of the curve.

Buy deferred Brent upside, funded by a short put position, we come up with the relevant hedging strategies in upcoming posts.