What is Brent Crude?
A brief overview of the importance of oil as a commodity
One of the most important commodities in the world is oil. It is used in a variety of industries, including manufacturing, power generation, transportation, and more. The cost of transportation, daily necessities, and other commodities are all eventually affected by oil prices.
This essay would provide a wonderful starting point for your educational journey if you are new to the oil market. Let’s talk about what Brent Crude is, why it has that name, its futures market, other oil benchmarks, and a realistic approach to start trading in this extremely unpredictable global market. Watch this space for your introduction to a fantastic investment tool.
What is Brent Crude?
Brent Crude is a light, sweet crude oil that is obtained from North Sea oil and gas fields in North-West Europe. The oil and gas field is located 186 kilometres off the Scottish Shetland Islands’ northeastern coast. It was stumbled upon in 1971.
It is regarded as sweet and light because of its decreased density and lower sulphur level. It now refers to every part of the Brent complex. a North Sea-based oil market that trades commodities both financially and physically. The price of the Brent Crude Futures contract that trades on the ICE is primarily referred to as “Brent crude” (Intercontinental Exchange). Brent is now the most commonly used benchmark for oil prices globally and it guides nearly 80% of the trades in the spot oil market.
Why is it called Brent Crude?
Shell UK Oil Exploration and Production had a naming policy. They originally named all their oil fields after birds. The name Brent denotes the Brent Goose. Similarly, it is a backronym for the formation layers of the oil field: Broom, Rannoch, Etive, Ness, and Tarbert.
Let us quickly understand what Brent Crude Futures are.
Brent Crude Futures
Brent Crude Futures are deliverable contracts that give market players the opportunity to purchase or sell Brent Crude at prices that are either known in advance or at the spot price at a future date with the option to settle in cash. These contracts have months of expiration.
Before, a spot market was used to trade Brent Crude. Yet, because of the volatility, its futures market became more well-known since market participants could reduce the risk by signing contracts for future delivery of crude oil.
Five different North Sea crudes are included in the Brent Futures basket: Brent, Forties, Oseberg, Ekofisk, and Troll. They are frequently known as BFOET.
Available on the Intercontinental Exchange are Brent Futures (ICE). Typically, the trading hours are from 1 AM to 11 PM (London Local Time). Commercial energy companies, investors, and traders are significant market participants.
The Brent Crude Futures contract was declared the world’s most important futures contract by the ICE. 1000 barrels of crude oil are represented by one futures contract on the ICE. They believe that the ICE Brent Crude Index is set by the physical transaction of Brent Crude.
Brent Crude is a key benchmark for the price of crude oil around the world because of how transparent it is when physical crude oil is taken into account for futures contracts.
Why is Brent Crude the Global Oil Benchmark?
As discussed above, the most critical aspect making Brent Crude a prominent global oil benchmark is the consideration of physical trade of North Sea oil. However, is it the only reason making it the oil benchmark for about three quarters of crude oil traded globally? Let us deep-dive into some other significant reasons:
Geographical Location
Off the shores of Scotland and Norway in the North Sea, Brent crude oil is extracted. Between Asia and the Americas lie the North Sea Basins, which extend from the UK to Norway. These oil fields are accessible from these commercial routes.
Brent Crude is transportable by sea and has simple access to ports, storage space, and international shipping. The cost of transportation is reduced by the geographic location of oil fields. Brent Crude is easier to transport because it is produced on a maritime basis, in contrast to West Texas Intermediate, which is produced on a land-based basis and whose supply is dependent on available pipeline capacity. As a result, Brent crude is widely used as a benchmark for oil prices in these areas.
High Quality
Brent crude is a high-quality oil with less sulphur, making it easier and more affordable to convert into petrol (petrol), diesel, jet fuel and other fuels. It is also used to make hundreds of cheap products, such as lubricants, cell phones, laptops, CDs, lipstick, aspirin, plastics, adhesives, solvents, and more.
Brent crude has been used by a number of sectors, including transportation, industry, power generation, and pharmaceuticals. Thus, there is a consistent need for Brent Crude.
Transparency
The market for Brent crude oil is active and very liquid. Participants in the global market can thus readily obtain information about its pricing. This makes it easier for buyers and sellers to agree on a fair price for oil transactions.
Historical Significance
Brent crude has significant historical significance and has long been used as a benchmark for oil prices. This shows that market participants are at ease using the Brent Crude price as a benchmark because they are accustomed to it.
Other Oil Benchmarks
Notably, Brent Crude is not the only oil benchmark. Then, what are the other oil benchmarks? Let’s take a glance:
- West Texas Intermediate (WTI)
- Dubai Crude (Platts)
- OPEC Reference Basket
- Shanghai Crude
- Tapis Crude
- Urals Oil
- Bonny Light
So far, we have discussed the meaning of Brent Crude, why it is a global oil benchmark, and the other oil benchmarks used to set the crude oil spot price. Some of the above-mentioned oil benchmarks also use ICE Brent Crude Futures to price their contracts, including Dubai, Urals, and West Africa. (Source)
These benchmarks aid in establishing the price of crude oil traded under term contracts as well as its spot value. By hedging and risk management, benchmarks draw managed money to the oil market.
For more insights, please red: Why is Brent Crude Global Oil Benchmark?
One of the most liquid crude grades is Brent. The price of nearly 75 percent of the crude oil traded globally is determined by this benchmark. Due to its qualities, it is appreciated by refiners and is easily transported across the globe. It is therefore a widely traded commodity. Similar to how active futures and derivatives markets support Brent Crude’s position as the world’s standard for oil.
Also Read: What is WTI?
The size of the global oil market exceeds US$ 2.7 trillion. Trading in oil futures, options, and CFDs is available to investors. Without holding any crude oil, you can speculate on oil spot prices, futures, or options contracts using oil-based CFDs. Significantly, the underlying asset for these investment products will be crude oil.
Thus, OTC brokers offer chances to speculate on the market. This Brent Crude CFD is a derivative of the Brent Crude Futures Contract. To make wise trading selections, a thorough market study is required. We offer the market information for this Over-The-Counter (OTC) Brent Crude derivative. Contact us if you’re interested in finding out more.
We provide accurate, reliable, and curated market data for Brent Crude and other CFD instruments, like precious metals, stocks, and stock indices. Please visit our CFD Data product page to learn more.
You can leverage our REST API to obtain Brent Crude CFD live prices (real-time price data) and historical price data for in-depth Brent Crude analysis.
For more details and insights, please read the Brent Crude blog on our website.
