Brent Crude is one of the oils that you can trade online through CFDs, but it's also one of the most volatile commodities in financial markets. This benchmark oil, which serves as a standard for fixing black gold prices on a large part of the international stock markets, is a must-know standard. But what is Brent crude oil, how is it different from the other most popular types of oil, or how is it rated and how do you analyse it?
The operation of different refineries throughout the world with interruptions or maintenance that affect the North Sea oil pipelines, could influence supply and thereby lead to a rise in the price of this asset.
Decisions taken by OPEC, notably relating to a decrease or increase in their production programme will also greatly influence the supply and therefore the price of Brent oil.
Of course, the conduct and decisions of the other major crude oil producers throughout the world such as Russia and the United States should also be monitored.
Climatic effects such as hotter summers or colder winters can also increase the demand for oil.
The price of American WTI crude oil can also serve as a basis for your analysis of the price of Brent oil as these two assets are often correlated.
Finally, we would of course also follow the economic and industrial health of countries that import the most oil such as the United States, the European Union and certain Asian countries including China and Japan.
First, let's take a few moments to give you a little more detail on Brent oil and its main features.
Brent petroleum originally got its name from an oil deposit which is located in the North Sea and more precisely, off Aberdeen in Scotland. The deposit was discovered in 1971 and gave its name to the reference oil that we know today. It was in 1976, 5 years after its discovery, that this deposit began to be exploited and the exploitation lasted over 35 years. Nowadays the deposit is no longer active since it has been drained. It was the Shell company which exploited the platform and deposit after its discovery, and gave it the name Brent in reference to the Brent goose which is a migratory bird frequently found in the Northern hemisphere. It's also an acronym using the first letters of the formation layers from which it's extracted: Broom, Rannoch, Etive, Ness and Talbert. It barely took a few years before the name Brent was finally used as the designation, by extension, of a type of light oil stemming from a mixture of different oils all extracted from the North Sea.
Nowadays, Brent crude oil is considered one of the largest types of oil in the world and is one of the top three black gold benchmarks for speculation on this commodity and on the financial markets. The other two reference oils are WTI or West Texas Intermediate which is an American oil and Dubai Crude/ Oman Crude.
As you've probably realized, Brent oil has become one of the biggest oil references around the world. This type of oil is classified as light oil because of its very low density and is also considered to be sweet crude oil because of its low sulphur content. The fact that it is directly and exclusively extracted from the North Sea gives it other names like North Sea Brent or London Brent. It's also possible to name a barrel of oil "Blue Barrel" because of the colour of black gold.
It is also important to know that a barrel of oil has a capacity of around 42 US gallons, which represents approximately 159 litters. The sulphur content of Brent oil is 0.37% on average with an API density of around 38.06 as well as a specific density of around 0.835.
It's possible to produce both petrol and distillates when using Brent oil. It's also worth noting that the vast majority of its refining is still carried out in Western Europe today.
Originally, it was in London's financial centre and only at the auction on the international oil exchange that it was possible to trade Brent oil. But since 2005, things have changed a lot and Brent oil is tradable on the Intercontinental Exchange or ICE electronic platform. The size of a contract is 1,000 barrels of Brent oil on this platform, which represents 42,000 gallons.
As we saw above, Brent Crude is one of the most popular types of oil in the world along with Dubai Crude and WTI. West Texas Intermediate is certainly another benchmark oil, however there are certain differences with Brent that you should know about.
We know that Brent oil is used as a benchmark for only part of the world oil market. This is mainly the European market in which it is produced, but also other markets. So it's not the only reference for this raw material in the world. Among its direct “competitors”, there is WTI which is the benchmark oil for the American market.
There are also notable differences between these two types of oils, from a physical point of view as well. One of the biggest differences between Brent and WTI is the degree of API which itself determines the density as well as the quality of this oil. WTI has a slightly higher API than that of Brent oil. It contains on average 0.24% sulphur and is therefore considered to be a better quality crude oil. Brent oil, on the other hand, contains an average of 0.37% sulphur.
So, what makes the price difference between these two types of oil? It's naturally a question of oil quality as seen above, but not only. The price of one and the other can also vary depending on the production and delivery costs of the barrels. Other external factors, such as the geopolitical tensions taking place in the Middle East, can significantly reduce the production and therefore the supply of oil and therefore contribute to raising prices. However, the WTI is often less exposed to this type of risk so is a little less impacted by the consequences of this type of tension as it's located in isolated areas of the United States.
Apart from these few differences and strictly from a stock market point of view, the prices of Brent oil and WTI oil are often positively correlated. This means that they most often move in the same direction.
Of course before analysing effectively in the price of a barrel of Brent oil, it is necessary to know where this raw material is quoted, in what way and by whom. That's what you'll find here.
Trading in physical oil, which is traded in barrels, is done directly on what is called the spot market. On this market, there are various players in the oil market such as oil companies and refiners, who will exchange crude oil between themselves. On the spot market, the price of Brent crude is continuously listed, which means that its price changes 24 hours a day. There are different financial centres on which crude benchmark oils are listed around the world.
The ICE or Intercontinental Exchange in London is responsible for the quoting of Brent Crude. It's important to differentiate the ICE market from the spot oil market. On the London stock exchange, oil is not exchanged in its physical form, meaning in barrels, but only on buy limit order. As a result, it's mainly the positions taken by traders that influence the price of Brent oil and its development in real time. In order to determine this price, operators based themselves on the positions taken for the buy and the positions taken on the sale.
If you want to invest in Brent oil and anticipate future price changes, you need to know the elements that influence supply and demand. This could include:
You'll also need to systematically use technical analysis which is important here due to the very high volatility of this asset. The historical stock market charts will provide you with the basics for taking position in addition to this fundamental analysis.
If you're looking into Brent oil and the variations in its price, bear in mind that there are several ways to invest your money into this raw material. Here are the main ones:
Ultimately, it's up to you to choose the way you invest in Brent oil, one that best matches your expectations and profile.
The price of a barrel of Brent crude oil is influenced by various factors, the most important of which are supply and demand, i.e. the production and consumption of oil in the world. Production can be influenced by OPEC or OPEC+ decisions but also by geopolitical conflicts. Demand is mainly driven by industry and growth. The price of oil is also influenced by the value of the US dollar, the currency in which it is quoted.
Investing in Brent crude oil is not, of course, a straightforward process because if you were to buy barrels of oil, it would mean that you could store them. But there are specific contracts to speculate on the price of this commodity and in particular derivatives such as CFDs or contracts for difference which consist in taking a position on the trend of this asset.
Brent and WTI are two reference oils in the world. Brent serves as a benchmark for part of the world oil market, which is mainly in Europe. WTI or West Texas Intermediate is another type of oil that serves as a benchmark and is the current reference for the American market. These two types of oil also differ slightly in terms of purity.
eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.
Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail CFD accounts lose money. You should consider whether you can afford to take the high risk of losing your money.
Past performance is not an indication of future results. Trading history presented is less than 5 complete years and may not suffice as basis for investment decision.
Copy trading is a portfolio management service, provided by eToro (Europe) Ltd., which is authorised and regulated by the Cyprus Securities and Exchange Commission.
Cryptoasset investing is unregulated in some EU countries and the UK. No consumer protection. Your capital is at risk.
eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity specific information about eToro.
