What is Brent Crude?
30 March 2023
Oil is among the most critical commodities in the world. It is utilized in several sectors, including transportation, manufacturing, power generation, and more. Eventually, oil prices impact almost every aspect of our lives - from transportation to life essentials and other goods prices.
If you are new to the oil market, this article would be a great launch pad for your learning voyage. Let us discuss the meaning of Brent Crude, why it is named so, its futures market, other oil benchmarks, and a practical way to begin your trading journey in this highly volatile global marketplace. Stay tuned for your first acquaintance with an excellent investment instrument.
What is Brent Crude?
Brent Crude is the light and sweet crude oil extracted from oil and gas fields in the North Sea in North-West Europe. The oil and gas field is 186 kilometres off the northeast coast of the Scottish Shetland Islands. It was discovered in 1971.
Due to its lower density and lower sulphur content, it is considered sweet and light. Today it refers to all the components of the Brent complex. A financially and physically traded oil market based around the North Sea. Brent crude mostly refers to the price of the Brent Crude Futures contract that trades on the ICE (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 enabling market participants to buy or sell Brent Crude at a future date at the spot price or at prices known upfront with an option to cash settle. These contracts have expiry months.
Earlier, Brent Crude was traded through a spot market. However, due to the volatility, its futures market gained prominence, as market participants can mitigate the risk by entering into contracts for crude oil deliveries in the future.
The Brent Futures as a basket comprises five different North Sea crudes: Brent, Forties, Oseberg, Ekofisk, and Troll. They are commonly referred to as BFOET.
Brent Futures are available on the Intercontinental Exchange (ICE). The Trading Hours are usually 1 AM to 11 PM (London Local Time). Significant market participants are commercial energy firms, financial participants, and traders.
The ICE established Brent Crude Futures as the most significant futures contract in the world. One Futures Contract on ICE represents 1000 barrels of crude oil. They consider the physical trade of Brent Crude to set the ICE Brent Crude Index.
This transparency of considering the physical crude oil trading for futures contracts makes Brent Crude such an important global oil price benchmark.
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:
Brent crude oil is extracted off the coasts of Scotland and Norway in the North Sea. The North Sea Basins, which stretch from the UK to Norway, are located between Asia and the Americas. These commercial routes pass close to these oil fields.
Brent Crude is waterborne, with easy access to global shipping, ports, and storage capacity. The geographic location of oil fields lowers the cost of transportation. Considering that West Texas Intermediate is landlocked and its supply depends on available pipeline capacity, Brent Crude is easier to transport because it is produced on a maritime basis. As a result, Brent crude is frequently used in these regions as a benchmark for oil prices.
Brent crude can be refined into gasoline (petrol), diesel, jet fuel, and other fuels more easily and affordably since it is a high-quality oil with little sulphur. Hundreds of bottom of the barrel products, including lubricants, cell phones, laptops, CDs, lipstick, aspirin, plastics, adhesives, solvents, and more, are also produced using it.
Several industries, including transportation, power generation, manufacturing, and pharmaceuticals, have utilized Brent crude. As a result, there is a steady demand for Brent Crude.
The Brent Crude oil market is open and highly liquid. So, global market participants can freely acquire information about its pricing. This simplifies deciding on a reasonable price for oil transactions for buyers and sellers.
Brent crude has served as a benchmark for oil prices for many years and has considerable historical significance. This indicates that market players feel comfortable using Brent Crude price as a benchmark because they are familiar with it.
An approximate illustration of key oil benchmarks across the globe.
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)
Along with defining the spot value of crude, these benchmarks help determine the crude oil price sold under term contracts. Benchmarks also attract managed money to the oil market through hedging and risk management.
Brent Crude is among the most liquid crude grades. This benchmark sets the price of about three-quarters of crude oil traded globally. It can be easily transported globally and is preferred among refiners due to its characteristics. Thus, it is a heavily traded commodity. Similarly, active forwards and derivatives markets reinforce Brent Crude’s role as a global oil benchmark.
The global oil market size is more than US$ 2.7 trillion. Traders can participate in oil futures, options, and CFDs. Oil-based CFDs allow you to speculate on oil spot prices, futures, or options contracts without owning any crude oil. Notably, crude oil will be an underlying asset for these investment instruments.
So, OTC brokers provide opportunities to speculate on the market. This derivative of the Brent Crude Futures Contract is a Brent Crude CFD. You need to perform an in-depth market analysis to make informed trading decisions. We provide the market data for this Over-The-Counter (OTC) derivative of the Brent Crude. If you are interested in learning more, contact us.
We provide accurate, reliable, and curated market data for Brent Crude CFD 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.