Brent crude definition
Brent crude oil is extracted from oilfields in the North Sea between the United Kingdom and Norway. It is an industry-standard because it is "light," meaning not overly dense, and "sweet," meaning it's low in sulfur content.
Brent crude oil futures are mainly traded on the London Intercontinental Exchange.
Brent crude is one of three major oil benchmarks used by those trading oil contracts, futures and derivatives. The other two major benchmarks are West Texas Intermediate (WTI) and Dubai.
Key difference
1. Extraction Location
WTI is extracted from oil fields in the United States. Brent crude is extracted from oil fields in the North Sea.
2. Content and composition
Brent and WTI have very different sulfur content and API gravity, which can directly affect the price of the oils.
While WTI has a sulfur content of 0.24%, Brent has a sulfur content of 0.37%. The lower the sulfur content of the oils the 'sweeter' the oil and the easier it is to refine. Both WTI and Brent are considered sweet crude.
The gravity of the oils is rated on a scale from 10 to 70, where the higher the number the less dense the oil. To put this in perspective, if the API is higher than ten the oil will float on water and if it is lower than ten the oil will sink. Both Brent and Crude are relatively light oils.
3. Where Brent and WTI are traded
WTI futures contracts are traded on the New York Mercantile Exchange (NYMEX), which is owned by the Chicago Mercantile Group (CME).
Brent futures contracts are traded on the Intercontinental Exchange (ICE) in London.
Top factors that affect the price of Brent oil
Oil prices react to many variables, including economic news, overall supplies, and consumer demand, etc.
1. Supply and demand
Strong economic growth and industrial production tend to boost the demand for oil; When the supply of oil-producing countries is less than the demand in the importing country, the price will rise, and vice versa.
2. Geopolitics
Across the globe, geopolitical factor plays a significant role in the oil market.
In addition to having general commodity attributes, oil also has strategic material attributes, so it is affected by geopolitics. For instance, US-Iran tensions remain a risk; Yemen's Houthi forces fired drones and missiles at the heart of Saudi Arabia's oil industry, etc.
3. OPEC
The Organization of the Petroleum Exporting Countries (OPEC) controls most of the oil production and distribution, often dictating costs for not only oil suppliers but countries as well. Most nations factor oil prices into their budgets, so OPEC has been considered a leading geopolitical force.
4. U.S. Dollar
Crude oil is quoted in U.S. dollars (USD). So, each uptick and downtick in the dollar or the commodity's price generates an immediate realignment between the greenback and numerous forex crosses.
5. Alternative Energy Sources
Alternative energy sources are substitutes for crude oil. These Crude Oil Substitutes include solar energy, oil sands, wind power, coal mine methane, geothermal energy, nuclear energy, LNG, hydrogen fuel cells, and natural gas.
The energy industry is sure to evolve, and experts are watching to see what role oil will play in the future.
Oil prices to bounce back in the coming months
Oil decline recently as worries about a surge in COVID-19 cases in India and Japan, particularly, contribute to concern over the demand outlook.
The market is looking to "grasp what will weigh more heavily on demand, seeing a rise in COVID-19 infections in India and Japan but a demand uptick in the U.S. and Europe," said Paola Rodriguez-Masiu, vice president of oil markets at Rystad Energy.
India, one of the world's largest oil importers, saw more than 330,000 cases in a 24-hour period, setting a global record for a second day. In Japan, Tokyo and other cities suffered another lockdown Friday to stem the rise in coronavirus cases.
India and Japan are the world's third and fourth largest oil importers respectively, after China and the U.S.
"The explosion in Indian COVID cases remains one of the key near-term risks plaguing what we would deem as an otherwise reasonably constructive backdrop for investor sentiment," said Michael Tran, analyst at RBC Capital Markets.
Over the past four weeks, U.S. demand for motor gasoline averaged 8.9 million barrels a day, up by 61.5% from the same period last year, and "we see demand in the country rising following a steep recovery trend as the summer driving season begins," she said. Over in Europe, April's Eurozone PMI data came up "surprisingly positive, a sign that demand is ticking up."
However, assuming that the latest virus outbreaks are contained before too long, strategists at Capital Economics remain relatively optimistic on the global oil demand outlook, and expect prices to reverse course before long and rise in the months ahead.
"We still think that global demand will boom in the coming quarters, led by the U.S. The progressive easing of quarantine measures there should continue to lift travel mobility and demand for products, such as gasoline."
"We don't expect OPEC+ to make any major changes to production quotas given that oil prices are only slightly above their level at the previous meeting and the demand outlook appears broadly similar."
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