UBS: Crude oil – a very attractive forward curve at

Crude oil – a very attractive forward curve at
the long end
Long-dated futures contracts in Brent crude oil trade at a large
discount to the current spot price. We think this offers investors the
opportunity to build up exposure from a strategic perspective. The 18–
23% discount of the three- to five-year futures contracts vs. spot are
too low when considering that crude oil demand growth in emerging
markets is set to advance firmly in the coming years. To curb global
crude oil consumption growth and prevent it from surpassing supply
growth, global crude oil costs as a share of GDP need to stay high. We
think that global crude oil costs vs. nominal global GDP must stay at
5% or higher to balance the market. This would imply that crude oil
needs to trade around USD 135/bbl and USD 155/bbl in three to five
years. Investors who are conservative in their investment approach
should take on some long exposure on a capital-protected basis. Those
investors who can hold 15–20% volatility should seek an outright
position.
Dominic Schnider, Analyst, UBS AG