Brent Crude

Published on :

21 Aug, 2024

Blog Author :

Edited by :

Reviewed by :

Brent Crude refers to a unique type of crude oil that is sweet and light, extracted from the Brent oil field of the North Sea located in the East Shetland Basin. As a commodity, Brent crude oil's primary aim is to provide a standardized and widely recognized benchmark for the pricing and trading of crude oil in the global market.

Brent crude has been an essential commodity of the global economy. Most of the countries across the globe rely on it for their energy needs. Investors and traders keep a close eye on their prices because fluctuation in Brent crude adversely affects the prices of goods and services globally. Moreover, it is traded on the Intercontinental Exchange (ICE) under the ticker symbol "B.Z.

What Is Brent Crude?

Brent Crude is a particular variety of crude oil that is light and sweet, sourced from the Brent oil field located in the East Shetland Basin of the North Sea.
It is widely used as a pricing benchmark by buyers and sellers of crude oil and serves as a reference point for global crude oil transactions.
Therefore, it mostly gets extracted from the oil fields in the North Sea, whereas WTI Crude mostly gets removed from the oil Wells of the United States.
Moreover, this oil aims to provide a transparent, efficient, and widely accepted benchmark for pricing, trading, and risk management in the crude oil market.

Brent Crude Explained

Brent Crude is a light, sweet crude oil obtained from the oil field in the East Shetland Basin of the North Sea. It is named after the Brent Oil field, which was discovered in the 1970s. It is also characterized by its low density and low sulfur content, which makes it a" sweet" and "light" oil.

Thus, since long it has been utilized as a benchmark for crude oil pricing since the 1980s, having its cost averaging around $25-$30 per barrel in the early 2000s. However, due to the growing worldwide demand, its price surged and peaked at over $140 per barrel in 2008, followed by a steep decline during the 2008 financial crisis.

Other characteristics as drawn from the historical prices of this oil are:

Brent crude oil price remained steady at around $100 per barrel from 2011 to mid-2014.
In 2014, an excess supply of oil caused a dramatic drop in the price of Brent-Crude.
Moreover, Brent-Crude reached a low of approximately $30 per barrel in early 2016.
Furthermore, the COVID-19 pandemic and economic slowdown caused a temporary drop in demand and a significant decrease in Brent crude barrel price in early 2020.
Therefore, since then, the price of Brent-Crude has gradually risen, reaching approximately $80 per barrel in 2021.
In addition, Brent-Crude price fluctuations have also impacted energy markets globally for many years.

Moreover, this crude also finds use in futures market trading and the Brent index. For futures market trading, it has the following features :

First, Brent-Crude futures are traded on ICE Futures Europe using the symbol B.
Then one must know that One contract of Brent-Crude on ICE equals 1000 barrels.
Moreover, Brent-Crude contracts are traded in U.S. dollars.
Finally, each tick gained or lost in this trading on ICE equals $10.

Price Chart

Let us look at a Brent crude price chart to understand it better:

From the above Brent crude oil price chart, as of 30th May 2023, one can ascertain the following:

U.S. crude inventories decreased by over six million barrels in the third week of May, surpassing expectations predicting a 1.7-million-barrel decrease.
In addition, Brent crude futures climbed beyond $81 per barrel around May 24 afternoon.
Besides, the U.S. oil benchmark is still about 7% below what it was in April due to worries about sluggish worldwide growth in economies and tightening economic conditions, which could harm the energy demand.
However, declining oil refining revenues have also raised concerns about refineries reducing throughput.
Nevertheless, Investors have begun assessing the state of the world's top oil users by looking forward to various U.S. economic statistics.
One can also come to the conclusion that significant oil corporations, including Exxon Mobil and Chevron Corp., may announce their first-quarter financial results at the start of June too.

Examples

Let us use a few examples to understand the topic:

Example # 1

Let's say Jack, an investor who believes that the price of Brent crude oil will increase due to geopolitical tensions in major oil-producing regions. Therefore, he takes a short position on Brent oil futures contracts.

At the beginning of the trading day, the price of Brent crude futures is $75 per barrel. Thus, he sells one futures contract representing 1,000 barrels of oil. By selling the contract, he must deliver 1,000 barrels of this crude oil at a future date.

Therefore, a few days later, due to escalating geopolitical tensions, the price of crude increased to $80 per barrel. As a result, the value of his short position has declined, and he would have to buy back the contract at a higher price to close the position.

Realizing the potential loss, he decides to buy back the futures contract. The purchase price is $80 per barrel, and he purchases one contract to close the position. Moreover, by buying back the contract at $80 per barrel, he incurred a loss of $5 per barrel (selling price of $75 per barrel - buying price of $80 per barrel). Since the contract represents 1,000 barrels, his total loss is $5,000.

In this example, Jack's short position on Brent crude futures resulted in a loss due to the price increase. However, in this case, the price moved against his expectation, resulting in a loss.

Example # 2

Brent Crude has fallen from its 2 ½ month peak at $87.19 in April 2023, primarily because of additional central bank monetary tightening that could hinder global growth and energy demand. As a result, it has reached its current April low at $80.26, almost closing the gap between March and April at $79.91 before experiencing a rebound.

Brent Crude vs WTI (West Texas Intermediate) Crude

Although both are crude oil, they differ in the following points as per the table below:

Particulars	Brent Crude	WTI Crude
Definition	It mostly gets extracted from the oil fields located in the North Sea.	WTI crude mainly gets extracted from the oil Wells of the United States.
Geographic location	Geographically, the oil field gets located in the North Sea off the coast of Scotland.	This oil field is located in the USA in North Dakota, Texas, and Oklahoma..
Quality	It has 0.37 percent as Sulphur content.	Contains 0.24 percent as Sulphur content.
Density	The oil has an API gravity of 38.06⁰	Has an API gravity of 39.6⁰
Global benchmark	It is the most commonly used global benchmark for crude oil pricing in the middle east, Africa, and Europe.	Moreover, it is the most commonly used benchmark for crude oil pricing in North & South America.
Transportation	It gets mainly transported to the end user by sea	Transported primarily for the end user by pipelines.

Frequently Asked Questions (FAQs)

1. What is Brent crude oil used for?

Brent crude oil blends Ekofisk, Brent, Oseberg, and forties. It mostly gets used for producing different petroleum products, gasoline, diesel fuel, asphalt, jet fuel, and heating oil.

2. Why is Brent crude important for the global economy?

Brent crude plays a vital role in the global economy as it is used as a benchmark for oil prices, which affects the cost of transportation, manufacturing, and energy production. Changes in Brent crude prices can have significant implications for businesses, governments, and consumers worldwide.

3. Who owns Brent crude oil?

Shell operates the Brent field in the North Sea off the northeast coast of Scotland, positioned midway between Norway & the Shetland Islands. This field ranks among the largest in the region and comprises four major platforms: Alpha, Bravo, Charlie, and Delta. Many oil and gas corporations operating in the crude oil field, namely TotalEnergies, ExxonMobil, and Royal Dutch Shell, own the Brent crude oil.