Looking at Brent crude in euro terms captures both crude oil bakcwardation, euro inflation and dollar weakening.
Looking only in dollar terms then you loose the element that financial markets price the USD 11% lower vs euro over the next 3.5 years.
Brent crude Dec-2021 in euro terms is a crying buy in my view
Same actually goes for Brent crude Dec-2021 in dollar terms, but then you don’t get a reflection of markets 11% dollar softening to Dec-2021 expectation.
Real Euro Dec-2021 captures:
– Crude oil in dollar backwardation: -21.0%
– Dollar vs euro weakening of -11.0%
– Euro inflation to Dec-2021 of – 5.2%
– Total combined disscount versus front month Brent: 32% in real euro term
Front month Brent in euro terms only traded below this real level during the most intense sell-off from end 2015 to early 2016.
Much the same goes for Forward Brent Dec-2021 in real GBP/bl. Dirt cheap.
Brent crude Dec-2021 in real GBP:
– Brent crude backwardation in dollar terms: -21.0%
– Dollar vs GBP forward weakening: -5.5%
– GBP inflation to Dec-2021: -11.6%
– Total combined effect: -33.0%
(1mth Brent in GBP/bl vs real, inflation adjusted Brent crude Dec-2021 in GBP/bl)
Chief analyst, Commodities