What Is Brent Crude Oil
Brent is one of the marker grades of oil, the price of which determines the dynamics of most world oil prices. Such oil is extracted in the North Sea, in the region of the Shetland Islands, owned by the United Kingdom. Physically, Brent is not just oil extracted from a particular well, but a mixture of fifteen different types of oil produced in the region.
This brand has become a reference due to the reliability of supplies, the presence of several independent suppliers, and the willingness to buy it from many consumers and extractors. Despite some problems with deliveries in the past and not the largest production volumes, the Brent mixture has sufficient liquidity to remain a marker.
The main countries that have the right to extract and transport the oil on the shelf of the North Sea are those that have access to the coast and the corresponding right to develop deposits within the 200-mile economic zone. The countries where Brent is produced are:
- Norway - 91 million tons
- Great Britain - 48 million tons
- Denmark - 7 million tons
- Netherlands - 17 million tons
Germany, France, and Sweden also have insignificant shares in this production.
Properties of Brent Crude Oil
The Brent grade is called the reference one because the physical characteristics of this brand are a guideline in determining the quality indicators of the remaining grades. It is classified as light, with low sulfur content in the composition, well amenable to processing. The lower the sulfur content, the higher the quality of the oil, and the higher quality are the products obtained from it by distillation.
The Brent mixture is classified as light low sulfur oil. Its density at 20°C is about 825–828 kg/m³ (38.6–39 degrees API), and its sulfur content is about 0.37%. According to these indicators, WTI (West Texas Intermediate aka Light Sweet) is close to the American mixture. Typically, Brent is refined in the north-west of Europe, but in the case of favorable pricing it can be delivered for processing in the USA and the Mediterranean.
History of Brent Crude Oil
The name of the oil comes from the field of the same name in the North Sea, which was discovered in 1970. The word Brent is formed from the first letters of the field horizon names - Broom, Rannoch, Etive, Ness, and Tarbert. Initially, the grade was defined as a mixture obtained at the Sullom Voe Terminal (Shetland Islands).
Since the mid-1980s, production at the Brent field has begun to decline, falling from 885,000 barrels per day in 1986 to 366,000 by 1990. In 1990, oil produced in the Ninian system was added to the Brent grade. The oil mixture was produced in volumes of about 800,000 b/d in 1992, falling to the level of 400,000 in 2001 (about 20 tankers per month).
In July 2002, Platts, one of the two quote agencies used to determine the price of Brent contracts, added oil produced at other fields in the same region: Forties (North Sea) and Oseberg (Norway). The new mixture was called BFO (Brent-Forties-Oseberg). Then, in 2007 Ekofisk was added and the mixture was named BFOE.
The cost of Brent has traditionally been close to the cost of WTI, the benchmark for oil produced in the United States and imported into the country, with Brent usually trading at $1-4 per barrel. The price was lower than WTI due to higher shipping costs to the United States. However, since 2011, the parity has changed and Brent began to bargain with a premium of $10-20 per barrel to WTI prices. A narrowing of the difference manifested itself in 2013-2014. Such a difference in price can be explained in various ways, including:
- direct connection of WTI futures with physical deliveries (3-4% of contracts reach them), in contrast to non-deliverable Brent futures, which are more convenient for trading and speculating;
- congestion in the infrastructure of Cushing, where WTI is supplied (overstocking of oil storage facilities and congestion of oil pipelines after an increase in production in North America);
- greater economic growth of countries whose imports are set by Brent prices.
There are discussions regarding the validity of further use of Brent crude oil as a marker for determining prices on the world market. This is primarily due to a decrease in oil production at the fields in the North Sea. It leads to decreased liquidity and distortions in determining the price of the mixture itself and other brands of oil.
On January 12, 2018, the price of Brent crude oil exceeded $ 70 per barrel. It was for the first time since December 4, 2014.
On April 24, 2018, the June futures price for Brent crude oil increased by $0.29 (0.39%) - up to $75 per barrel. Such growth was caused by increased geopolitical tensions in the Middle East, and, according to experts, the upcoming reduction in fuel inventories in the United States.
Brent Crude Oil Futures
For many years, the oil has been both a raw material for the manufacture of fuel, and the subject of investment and speculation among traders. Brent holds about 70% of all exchange trading in hydrocarbons in the world. The main trading exchanges on which this grade of oil is listed are ICE (London Intercontinental Exchange) and NYMEX (New York Mercantile Exchange). Part of the supply of this oil is also traded through the exchanges of Singapore, Hong Kong, and Shanghai. Oil futures are traded on almost all largest exchanges in the world, including the American International Exchange (ICE). Brent futures are also traded on the CME Group and Shanghai Future Exchange, despite the fact that the proportion of Brent futures on the Shanghai Stock Exchange in the total trading volume is still small.
Now you are aware of what is Brent crude oil, what properties it has, as well as where and how its futures are traded. Visit https://www.monfex.com/financial-dictionary for more definitions of financial terms.