With the Brent and West Texas Intermediate (WTI) future curves in backwardation, global oil inventories have started to come down, tightening the market and sparking a welcome rally in the price of this commodities.

Previous recoveries in crude-oil prices ultimately proved fleeting because near-term futures never traded a premium to contracts further out on the curve, a condition that incentivizes market participants to draw-down inventories.

Add in the ever-present potential for disruptions to Nigerian and Libyan hydrocarbon production, as well as the recent shake-up in Saudi Arabia, and the risk-reward balance still skews to the upside for oil prices.

Against this supportive macro backdrop, we have increased our exposure to exploration and production companies in recent months, focusing on names with solid balance sheets and franchise assets that legitimately could live within cash flow.