What is Brent Crude Oil?
Brent Crude Oil, often referred to simply as Brent crude, is a major trading classification of sweet light crude oil that serves as a major trading benchmark for worldwide oil markets. It gets its name from the Brent oilfield, located in the North Sea between the United Kingdom and Norway. Brent is one of several prominent classifications of crude oil, with others including West Texas Intermediate (WTI), Dubai Crude, and the Organization of Petroleum Exporting Countries (OPEC) Reference Basket.
The price of Brent crude has a significant impact on global oil prices. Movements in the Brent crude price are closely watched by traders, investors, and the oil industry, as they can affect the cost of gasoline, diesel, and other petroleum products.
Brent Crude Oil historical performance
In 1969, the first commercial oil discovery was made in the North Sea, where oil exploration had begun in the 1960s.
During the 1970s and 1980s, the North Sea became increasingly vital for oil production. Consequently, the Brent crude blend became a price standard for crude oil in the region. Along with the West Texas Intermediate (WTI), it grew to become a major global benchmark over time.
Although there are several types of Brent, they have been grouped together to form what is known as "Brent crude" today.
Numerous factors, including geopolitics and natural disasters, have always contributed to oil's historically volatile price.
In the 1980s and 1990s, Brent traded within a well-defined range, rarely exceeding $40. In 2008, an oil price shock caused a significant price increase, and Brent reached an all-time high of $148. Since then, volatility has remained high, with oil crashing to $28 during a prolonged correction (2014-2016) and again in 2020, when the COVID-19 pandemic began to spread globally and led to a plunge to $16 per barrel. The invasion of Ukraine in 2022 led to a dramatic U-turn, with Brent rising back to nearly $140. Prices have cooled since then, but Brent continues to consolidate at high levels.
What affects the price of Brent Crude Oil?
The principal factor that can affect the price of Brent crude is oil production levels. When production is high and supplies are abundant, prices tend to decrease. Conversely, when production is disrupted or reduced, prices tend to rise.
Another factor that can impact prices is the level of oil inventories, including both crude oil and refined products. High inventories can indicate an oversupplied market, while low inventories may suggest tighter supply conditions.
Geopolitical events such as conflicts, political instability, and disruptions in oil-producing regions can lead to supply disruptions, which can cause prices to spike. For example, tensions in the Middle East have historically had a significant impact on oil prices.
The demand for oil is also linked to transportation and industrial activity. Increased travel, shipping, and manufacturing can boost demand for oil and its products. During the Covid-19 pandemic, for example, lockdowns and travel restrictions led to a dramatic decrease in global oil demand. This sudden demand shock, coupled with a price war between major oil-producing countries (Russia and Saudi Arabia), caused a steep decline in oil prices. In April 2020, WTI crude oil futures for May delivery briefly traded at negative prices for the first time in history, meaning sellers were paying buyers to take oil off their hands. This was primarily due to a lack of available storage capacity and concerns that there was nowhere to store excess oil.
Environmental policies, such as climate change concerns and policies aimed at reducing carbon emissions, can affect the long-term outlook for oil demand and, consequently, prices.
What to watch out for when trading Brent Crude Oil?
When trading Brent Crude Oil, investors keep an eye on the following announcements in the economic calendar:
- OPEC and Non-OPEC Production Decisions: The OPEC and non-OPEC oil-producing countries often coordinate production levels to influence prices. Production cuts by these groups can lead to higher prices, while increases in production can put downward pressure on prices.
- US Energy Information Administration (EIA) Weekly Petroleum Status Report: The EIA releases a weekly report that provides data on US crude oil inventories, production levels, and refinery utilisation rates. A notable change in US inventory levels can lead to price fluctuations.
- Interest Rates: Central bank policies, such as changes in interest rates, can impact economic conditions and, consequently, oil demand. Higher interest rates can affect borrowing costs and economic growth.
- Trade Agreements and Tariffs: Trade tensions and negotiations between major economies can impact the global economic outlook and, consequently, oil demand.